Now What? Reading Trump Tea Leaves on ITC Section 201 Solar Case

The International Trade Commission has filed its remedy recommendations for the Section 201 case filed by Suniva & SolarWorld. These recommendations will be submitted to President Trump no later than November 13 and the President will make a final decision within 60 days whether to apply, ignore, or change the remedies before committing them to policy. While Trump is the most…erratic…decision maker we’ve had in the White House in recent decades, there are personality tendencies and external factors that can inform us of likely outcomes.

Whether attributed to core psychology or the result of growing up in the cutthroat world of NYC real estate, it is no great secret that Trump indulges the strongman tendencies inherent in his zero-sum, us vs them paradigm of the world. It’s well-documented that he’s not big on details, has a short attention span, and is known to change his mind or statements based on the last conversation he had.

Beyond his own personal tendencies, President Trump has a mix of advisors around him pulling in different directions. Advocating the pro-tariff argument will be the “economic nationalist” folks like Steve Bannon and his protege Steve Miller (don’t make the mistake of thinking that Bannon doesn’t have influence just because he’s left the White House). On the other side, you have free trade “globalists” like NEC Director, Gary Cohn and Treasury Secretary, Steve Mnuchin. While Cohn and Mnuchin will be making strong arguments aligned with the Heritage coalition in the ITC hearings, Bannon and Miller’s cohort have the direct line to Trump’s die-hard base.

It’s also worth mentioning that – given his appointments of climate deniers to scientific positions – health, environmental, and other quality of life arguments aren’t going to have much weight with this President. Throw into the mix a Secretary of Energy who seems to be ignoring even his own oil & gas posse to push FERC toward subsidizing coal and nuclear power in the name of “baseload reliability,” and it’s unclear how much detail or explanation of the energy economy will resonate with the President either.

On top of all of this, there’s the real wildcard – the President is traveling to Asia November 3-14 including two days of bilateral meetings with Chinese Premiere Xi Jinping. This comes after Xi just successfully executed a power consolidation that significantly strengthened his own position juxtaposed with a progressively weakening US President roiled in scandal and without any moral authority to challenge the Chinese leader’s own strongman maneuvers. Xi has some previous experience with Trump after his earlier visit to the US, which included an explanation of the complicated nature of China’s relationship and influence on North Korea. It’s a safe bet that Xi is going to bring this issue up in his meeting with Trump. The question is how he presents the issue. Unlike the NYC real estate market where cutthroat competition is predicated on the inherent scarcity of the market, the global demand for solar panels is only increasing. China’s domestic demand alone is projected to be 4x that of the US in 2017. Suffice it to say, we need them more than they need us.

So what does this all add up to? Trump has three likely courses of action.

Option 1: Accept the ITC recommendations – This is most likely if (1) the President listens to the Bannon-ites around him and wants to stick it to the Asian manufacturers, (2) finds the nuance, arguments, and multiple upstream and downstream variables of the energy market too complicated and detailed, and (3) on his desk when he returns from Asia, it will be the most recent message in front of him before making a decision. There’s a 40% chance of this decision.

Option 2: Ignore the recommendations – This will be the argument from Cohn and Mnuchin in addition to SEIA and others. As climate, health, and even jobs are likely to have little impact, it’s going to be important to have the “if it ain’t broke, don’t fix it” case made not just from solar advocates or free trade think tanks but also major industries that matter to Trump such as tech, manufacturing, and real estate. It would also be extremely useful to get Secretary Perry to vocally support this option. How Xi manages ‘face’ regarding Trump on his visit could also have a major impact on this result. There’s a 20% chance of this decision.

Option 3: Target China – This option is where the Asia trip wildcard and Trump’s strongman tendencies combine. If the President leaves China feeling weak or losing face to Xi, it’s quite possible he’ll lash out and use solar tariffs to do it. Trade penalties on Chinese solar panels play into his us vs them paradigm; responds with ‘economic nationalism’ language that resonates with his base; allows him to ignore the details of the larger energy economy; and, in some circles, will prove a nice headline distraction for a day or so to the Mueller investigation. Will it also embroil us in an unfair trade case at the WTO? Highly likely. Does the President care? Almost certainly not. The probability of this outcome is 30%, but is heavily dependent on how Xi handles the meeting with Trump and his ego – and one should never underestimate the Chinese sensitivity to ‘face’ in getting what they want.

Burying the Lede

A  PV-Tech article highlighting a decision by SunPower to sell their stake in yieldco 8point3 Energy added a quick note in the final paragraph on what may be another domino falling in residential solar financing.  It seems in addition to the yieldco sale, SunPower is also looking to sell its portfolio of residential solar leases.  It’s unclear if this signals the end of SunPower’s financing program entirely, but with the aim of returning to profitability by next year, it wouldn’t be surprising to see the company jettison the capital intensive product to return to its core solar manufacturing business. With scuttlebutt of troubles for Spruce Financial remaining solvent, OneRoof Energy closing its doors, and the recent bankruptcy of Sungevity, an exit by SunPower would further shrink residential third-party owned solar financing down to four: Tesla, Sunrun, Sunnova, and Vivint Solar.

The Customer Gets a Vote

There’s a common phrase in military strategy that every industry should adopt if they are selling to people…in other words, everyone. “The enemy gets a vote.” Regardless of how well planned, well executed, and well meaning an operation may be, it can all go pear-shaped if the enemy doesn’t react in the way(s) all the brilliant planning anticipated.

While one should never see the customer as an enemy, the same concept applies in just about any situation where a great idea or an amazing opportunity runs into the wall of consumer expectations or, more commonly, customer ambivalence. How many startups, regardless of industry, can one name that had a truly innovative, amazing idea that died due to bad timing, lack of interest, or a customer pool too small to monetize?

In the realm of energy, especially distributed energy, it’s important to remember that from the customer perspective, electricity has always been extremely simple and thus extremely easy to ignore. There is an amazing opportunity over the next decade to take advantage of new technology and data platforms to shift the electricity sector from a supply-driven model to a load-driven market – a shift that will affect industries across the entire economy, not just energy. But while those of us in the industry can see the numerous possibilities of DER aggregation, transactive energy, peer-to-peer power supply, and realtime power rates, none of them will manifest if they aren’t packaged in a way that provides customers with a sense of direct control without requiring a change in their lifestyle. Rooftop solar makes enormous sense for just about anyone in a position to install it (and often for those that aren’t), but in most cases and in most markets even something as simple as solar is still an educational sale – not because solar is particularly complex but because salespeople are fighting something much more powerful than confusion: complacency.

For an industry that hasn’t changed in 100 years, the power of inertia in engaging customers to perceive and act differently about electricity, in the face of extremely entrenched interests, is a pretty large Sisyphus stone. It will take more than marketing, lead generation, and soaring rhetoric. And most importantly, it will take more than grand ideas and shiny objects as products. As the distributed grid goes beyond solar and starts adding storage and platforms and energy management systems, each new widget may increase the capability of the end user but that doesn’t mean they’ll see the value of any of them in isolation or be willing to invest in each piece as part of a larger system.

If distributed energy is truly going to change how electricity is bought, sold, generated, and consumed, it’s going to have to have to guard against drinking it’s own kool-aid of shiny objects and focus heavily on building an entirely new system that saves homeowners money, decreases their carbon footprint, while staying extremely simple and extremely easy to ignore.

Lithium & the “Resource Curse”

I had an interesting exchange w/ Mike Gatto on Twitter this morning regarding the likelihood of the dangers and damage current ‘petro-states’ do to both their own economic development and the international security space writ large, would only be transferred to and repeated by states with significant sources of lithium and other rare-earth elements based on this FT article.  I pointed out that the US and other nations dedicated to international development have lessons learned and influence to help structure and/or direct policies on the extractives industry and those countries internally in order to avoid the “resource curse” – it was just a question of whether or not we would leverage them.  Mike doubted that such leverage would be used.  I didn’t disagree.

The resource curse, for those playing along at home, is an umbrella term for the numerous ways that building a national economy around a single high-demand resource (usually finite and labor intensive) damages the countries economy and civil institutions by flooding a limited group of individuals and companies with an exorbitant amount of money as compared to any other industry in the country.  This often opens the door to massive corruption, vast amounts of income inequality, and autocratic government dedicated to keeping the money flowing from that resource with little interest or investment in diversifying any other economic sector.  Examples of this are not just major oil countries such as Saudi Arabia, pre-2003 Iraq, and Venezuela, but also African nations mining coltan (used in electronics) and other conflict minerals, and, of course, Russia.

Thinking on it later, however, it did occur to me that there is one major distinction to be drawn between oil and lithium – the first is consumed, the other simply utilized.  This may seem to be splitting hairs, but it means there is a much easier path forward that avoids the worst outcomes of a resource curse for any country: recycling.  An economy that runs on oil (or coal or gas) is consuming that resource and must always replace it.  There is always a need for more production.  But a resource that is simply utilized can be re-utilized in another form – such as stacking worn out car batteries into a static battery bank on the electric grid – or recycled and re-processed to be used again – which Europe does with spent nuclear fuel as opposed to shoving it under a mountain like we do in the US.

Of course, as long as there is an ample supply of anything, the likelihood of major investment into recycling and reuse is small. We know this is still true for plastics and paper worldwide. Nor does this possibility negate the need to continue R&D into storage technology that use more common elements to avoid geographic and national dependencies.   However, if we keep avoiding the resource curse in mind, and push storage businesses to develop cradle-to-cradle supply chains from the outset, we’ll have a much easier time avoiding the exchange of one resource curse for another.

A few quick thoughts on the AEE Pathway 2050 Conference

I attended the AEE Pathway 2050 conference last week that focuses specifically on California energy policy.

A couple of quick thoughts from the discussions and panels:

  • It was an almost unspoken acknowledgement by all participants that the end goal for California should be 100% renewable / zero emissions economy. A panelist from Pattern Energy highlighted this by pointing out that, if we were starting from scratch, 100% renewable is completely feasible. The challenges aren’t technical, they’re a question of market mechanisms and mindsets.
  • There is broad agreement that we have hit the point that piecemeal policies and targets could do more harm than good. A number of government, utility, and private sector speakers all highlighted the need for an overall integrated plan for the 21st Century energy market in California.
  • The role and importance of including time and location variables for pricing, risks, and opportunities on the grid are much more prevalent than in recent years – especially in distribution grid discussions.
  • Questions of data access and customer ownership are going to be extremely tricky as data is the most important commodity for any organization at this point in any industry.  How “Smart” vs “Dumb” energy products and services can be will depend on resolving the tension between privacy & security and data access for (disruptive) innovation and solutions.
  • CPUC Chairman Picker’s recent comments on returning to retail energy are following classic political “trial balloon” phases – we’re still in the ‘stirring the pot’ phase.
  • There is still very little conversation going on in the advanced energy space about heat.

Upcoming post: “The Customer Gets a Vote”

Q1 Storage Number – This is not my shocked face

The Q1 stats for energy storage deployment came out last week and immediately set off a run of commentary on what’s happening with behind the meter storage and why it’s not hitting the same ramp rate as utility-side installations.  There are two very easy and obvious answers to this question: regulatory requirements and basic economics.

The first can be applied to both sides of the equation: certain states are now requiring utilities to include storage in their RFPs for resources and in California they have an actual storage mandate for the three major IOUs.  Why is utility scale storage growing? Because utilities are required to purchase it.

This same direct requirement is not present  for behind the meter customers – residential, commercial, or industrial.  This means that growth can only be indirectly influenced through customer-side economics, aka electricity rates.  In the case of storage (or distributed energy resources writ large) that’s usually through government incentives and customer savings.  So, let’s step back a minute and look at the various capabilities storage brings to the grid and if/how those capabilities are valued in the economics of both the utility and end-user costs.

Storage, in front of or behind the meter, provides two overarching services to the reliability and stability of the grid: load flattening and frequency regulation/voltage control (for the sake of this post, I’m blending them as they are managed together in most systems).  Storage provides these services by acting as both a load and supply resource – it can draw or add energy to/from the system – at any point during the day.  Fundamentally, storage removes, or at least softens, the importance of time in the delivery of electricity from the system.  With a tool to manipulate the impact of time, the need for high-priced peaker plants or replacing over-capacity circuits, is significantly decreased.  Storage is not just important for managing the intermittency of renewables but for decreasing the minute-by-minute cost of power as, when charged by renewable energy, there is no additional marginal cost for power discharged from a battery.

There are ample economic signals in the wholesale market to reflect the impact of time on system reliability and stability and limited signals in the commercial and industrial (C&I) space through demand charges, but in the residential space there are no time-value signals to the production or use of power.  This slowly starting to change through piloting time-of-use (TOU) rates in various utilities, but given the small number of customers involved in these programs who could take advantage of bill savings from onsite batteries, is the low growth in behind-the-meter storage really that surprising? Of course not, it’s economics!

It is also unlikely to stay this way for long.  In 2019, California utilities will be allowed to default all users to TOU rates (which is going to make for some fascinating rate cases in 2018).  There is a bill moving through the CA legislature to set up a storage incentive program similar to the California Solar Initiative for distributed storage.  Maryland and Hawaii are both implementing storage tax credit programs and other incentives to catalyze deployment.

So, just as I’m not particularly aghast at the slow deployment of distributed storage in 2017, I won’t feign surprise at hockey stick growth in 2019 and 2020.  By then, it won’t be the technical need or the economic incentive that holds back storage growth, but the soft costs and financing that will define the multiplier.

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Coming Soon!

There will be weekly to biweekly updates to this section on market news in general – primarily focusing on new policy chatter, regulatory discussions, and other public sector information that could have an impact on any or all industries and companies involved in the distributed grid.

In the meantime, if you have questions or thoughts on something you’ve heard in the market and want to understand what it could mean for your company, feel free to reach out!