Stephen Lacey: From Greentech Media, this is The Energy Gang, a weekly digest on energy, cleantech and the environment. I'm Stephen Lacey. Welcome.
This week, Scott Pruitt pushes scientists out the backdoor of EPA and invites industry in the front door. European utilities scoop up American distributed energy companies at a record pace, and international trade commissioners released their plans to penalize imported solar.
We'll bring on a special guest at the end of the show to help us understand what that last one potentially means for solar growth. In the meantime, we've got Katherine Hamilton and Jigar Shah with us from Washington, D.C., to explore these other stories. Katherine is the co-founder and partner with 38 North Solutions, who's been running around Capitol Hill trying to figure out this tax plan that's on the table now.
Katherine Hamilton: Hi. I hope everybody's well.
Stephen Lacey: Jigar is the co-founder and president of Generate Capital.
Jigar Shah: How are you doing?
Stephen Lacey: Doing fantastic. Over the weekend, I took to Twitter to holler over at you, Jigar, and I was referencing a story about EPA Administrator Scott Pruitt, who is implementing a new policy to kick many scientists off the agency's advisory boards and bring industry representatives and EPA skeptics to replace them.
Jigar often argues on this show that we pay way too much attention to this administration's hand-waving, and I flagged him on Twitter because I wanted to say that this is the kind of policy shift that does matter, and so Jigar said, "Okay, I don't disagree with you when it comes to the EPA, but we talked about Rick Perry's poorly written court rule last week, not this subject."
Fair point, Jigar. Fair point, so that's what we're leading with this week. Over the course of the last few days, we've gotten more detail on what Administrator Pruitt's policy would do. Basically, he's blocking any scientist who gets funding from the EPA from serving on an agency scientific review board, saying that it represents a conflict of interest. The scientific community is up in arms saying that there is already a very detailed process for ensuring scientific integrity and avoiding conflicts.
Twitter lit up this week with top scientists blasting Pruitt. Talking to The Washington Post, the former director of the advisory board under the Reagan administration called it "a major purge of independent scientists."
Katherine, I want to turn to you first to get some context. What exactly is the review board and why is Pruitt targeting it?
Katherine Hamilton: EPA has several advisory boards that they use to inform their work. In 1978, Congress directed the agency to establish this Science Advisory Board, and, really, what that does is it reviews the quality and relevance of the information that they're using in developing their regulations. It establishes some credibility and it advises the agency on broad science matters, but it doesn't direct what the agency does. It doesn't decide what programs it'll do.
It really just acts as, "We're the scientists. We know what's going on, and we're able to give you good advice and recommendations," and that is the same as this Board of Scientific Counselors, which advises and recommends to EPA's Office of Research and Development.
The woman that you mentioned, Deborah Swackhamer, is a professor emeritus at the University of Minnesota at the Humphrey School. She was ... served for a long time as the chair of the Science Advisory Board, and she was just recently the chair of this Board of Scientific Counselors, the BOSC. She found out, I believe, via email or via press reports that she would no longer be the chair, that she would instead be replaced by Paul Gilman of Covanta, which is an industry, and she said, "This has never happened before where a chair has been replaced or ousted before the end of their term."
Now, she still has the rest of her term to serve out, which goes until March of 2018, so she plans on doing that, but, when I reached out to her, she said exactly what you were saying, that this is really about undermining the credibility. It's scientific censorship. Already, the EPA ethics practices don't allow a scientist to comment on anything for which they are funded, but this, basically, eliminates any independent science advice, so they're allowing industry to come and comment on and participate in an agency that regulates the industry, which would seem to be a clear conflict, but won't allow scientists.
This will undermine the credibility of the agency. It will corrupt the practice of using scientific evidence to really formulate and support good policy and rigorous scientific review, as she says. This is a major step. It shows that EPA is really shifting away from its mission, which is to protect the health and welfare of people and our environment and, instead, turn everything over to corporations.
Stephen Lacey: It's so clever, isn't it? We often describe some of the happenings within the Trump administration as a bit bungling, right? Things just like happen in spite of the Trump administration. Things like Rick Perry's NOPR come out and distract us. They're extremely important, but the NOPR itself, that proposed rule on coal and nuke plants was really poorly written and has a lot of legal holes in it, but this is like really clever, and the way that he uses language to raise doubts about the scientific integrity of the science members of these review boards is quite effective, I think.
Katherine Hamilton: Oh, yeah, what he's ... What they've done is they're using a narrative that characterizes scientists as an interest group ...
Stephen Lacey: Exactly.
Katherine Hamilton: ... and this is an interest group that's motivated by a desire to get grant funding as opposed to a community of people that can really provide good advice and counsel to an agency that is supposed to be underpinned by scientific evidence.
Stephen Lacey: Pruitt is a shrewd dude, and he's taking a page right out of the climate denial playbook as well, right? This is exactly what we've heard from folks who smear climate scientists by saying they have this conflict of interest and that they're doing it to raise more money for their work.
Jigar Shah: I think we have-
Stephen Lacey: He know exactly what he's doing.
Jigar Shah: I don't know. I think we have very short memories. Look, let's just start by saying this really sucks. I definitely don't agree that scientists are interest groups. I think that they actually have earned the right to not be called an interest group.
That being said, this is exactly what the Bush administration did. The Bush administration, quoting the Sierra Club, "The Bush administration has introduced this pervasive rut into the federal government which has undermined the rule of law, undermined science, undermined basic competence and rendered government agencies unable to do their most basic function even if they wanted to." Right?
What Christine Todd Whitman did when she was the head of the EPA was to exit the Kyoto Protocol. Right? They described it as the equivalent of flipping the bird, frankly, to the rest of the world. Right? This is what Republican administrations are known to do.
Separately, the Bush administration hid the endangerment finding that they had done until after Bush left office. I mean, it's just like this is what they do. That's how fracking came to be. We undermined the Clean Water Act. We figured out how to get rid of all government regulations on fracking so that it could like grow unhindered right after the Bush administration left office.
Katherine Hamilton: One key difference that I'm hearing from people who formerly worked at EPA is that, during the Bush administration, a lot of people stayed and tried to work behind the scenes. People who really did believe in the mission wanted to stay put and continue to work as they ... however they could. This is a really different scenario where people are getting pushed out or they're getting marginalized. People are leaving, so a lot of the brain trust and the people who really believe in the mission are evacuating.
Jigar Shah: Right. I mean, when you're the Bush administration and you say, "I want to get into office," you say, "Industry is over-regulated," that, "The oil and gas industry and others are essential to the economy of the United States. When I get into office, I'm going to get rid of regulation," and, instead, they did what they believed. As they didn't go far enough, all these EPA people stuck around and put a lot of sand in the works and didn't allow them to roll back regulations as fast.
Now, the Trump administration, through Scott Pruitt, is like, "Well, I've got another angle on this and how to get rid of all you people so that we can actually strip all environmental protection away from this country." Right? That's basically what they're doing.
I guess what I'm saying is I'd like to blame Trump for this, but I don't. I actually think Paul Ryan, Mitch McConnell, everybody in the Republican establishment thinks that this is awesome.
Stephen Lacey: Yeah, of course, I mean, we don't want to miss the context, but we're talking about Pruitt because I flagged this story as an example of a very calculated move within the administration by a man who knows exactly what he's doing and is very legally savvy.
I think that the characterization that this administration doesn't exactly know what it's doing is false when you look at someone like Pruitt who was hand-picked to come in and dismantle the agency. He spent his entire career attempting to do that by working hand in hand with industry.
The question that I have is, as you said, Pruitt's case reflects the belief of a lot of Republicans, which is that the industry has been pushed out of the regulation-making process, and Pruitt is just bringing them in so that they can have their say as stakeholders. Pruitt's language assumes that industry has played no role in these regulations.
Katherine, what can we say about key rules and how the EPA has historically worked with major industrial players?
Katherine Hamilton: Yeah, I mean that's just patently false because, if you look at the record for the Clean Power Plan, this is exactly what Gina McCarthy and her staff did was they put out a draft and they said, "We need comment from everybody. We need comment from states. We need comment from environmental groups and other NGOs. We need comment from industry."
I mean, I was representing some of the industry groups, granted they were clean industry groups, but I represented industry groups, and everybody had a say, and what came out at the end was reflective of all of those comments.
Now, they were sticking to their mission, but at the same they were considering the comments of everybody who had filed in that proceeding, and I think that that happens with all of their rule-makings where they do a stakeholder process, and I think that's part of what's good about the way government can function is that you do and are inclusive of stakeholders, but it's not true that industry wasn't involved because they were.
Now, industry is being brought in to just dismantle regulation that helps them personally, but it doesn't actually comply with the mission of EPA.
Stephen Lacey: There was an October story a couple of weeks ago from Lisa Friedman, who was at E&E News, but went over The New York Times, and she got access to Pruitt's calendar, all 320 pages of it. From February through May, Pruitt met almost exclusively with industry. There were only three meetings within environmental or public health groups, one public health group and two environmental groups.
This is a man who has opened the front door to industry and is not going through a traditional process where you bring industry in in the comment period. There seems to be a method to his madness where he will go sit down with the member of an industry group and then, weeks later, announce some kind of rollback that's directly related to that interest group.
Katherine Hamilton: Yeah, and on the Scientific Advisory Board, there will be three members from the fossil fuel industry, one from the chemical industry, three Red State government people, and five out of the 17 members of the Scientific Advisory Board actually are skeptical that air pollution even is harmful to human health.
Stephen Lacey: Another George H. W. Bush veteran, William Reilly, who ran EPA under that administration, said that there is no precedent for this. He said that, "I'm not confident that the integrity of the entire legal apparatus is really safe." Under Reagan, W. Bush and H. W. Bush, you have prominent leaders who believe that this administration is going too far.
Katherine Hamilton: Yeah, I think it's really important that we continue to shine a light on what's going on, and it's great that Lisa was able to get all this information about the calendar and who Pruitt's meeting with. The new nominee for the Council on Environmental Quality owns four oil leases. That's also been reported in the press, so I think that the more that we can sort of shine a light on what's going on, the better, and we will be able to see that so much of this is traced back to money and traced back to industry and, eventually, back to Citizens United and how much influence corporations have on our legislative branch and, now, our administration.
Jigar Shah: Yeah, but I'm just saying it's like, I mean, this is the revolving door, right? This is the swamp rearing its ugly ahead again, which is that, for a lot of folks who work in government, the best job that they have when they leave government is working for these industries, exactly these industries. Right? I mean, Heather Zichal went to the natural gas industry, not the renewable energy industry.
Stephen Lacey: Yeah, I'm just saying, if you have a healthy skepticism of the role of corporates in government and the role of lobbying, then you should be alarmed by this process even if you're critical of certain EPA regulations.
Before we continue on to the next couple of subjects, let's talk about Mission Solar Energy, our sponsor.
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A small acquisition has us revisiting a pretty big trend this week, the Italian utility and now acquired eMotorWerks, a 14-person startup developing a grid interactive EV charging solution. The acquisition was made through EnerNOC, the demand response company that Enel bought earlier this year.
At the beginning of the year, Enel scooped up behind-the-meter storage developer demand energy, which kicked off a busy 2017. It's since developed this E-solutions group focused on smart home tech, lighting, fiber optics, off-grid distributed energy, EVs and battery solutions.
The question I have is how will a large utility like Enel tie all these businesses together, because it looks great on paper, but executing what I call this kitchen sink strategy will prove challenging?
Other utilities are taking on the challenge since 2010. They poured nearly $3 billion into distributed energy companies. Based on our tally, European utilities are leading the charge with Engie, Enel, Centrica and E.ON all entering partnership, making equity investments or outright buying American startups.
Is this a period of froth or a trend that will result in sizeable, sustainable revenue-generating businesses for these utilities?
Jigar, what do you think?
Jigar Shah: What I'm struck by is that, we talk about this all time with Grid Edge and how people are piloting programs to death and not really doing roll-outs, which is what affected EnerNOC for sure, but then also with like sort of eMotorWerks and others, and I think when you look at what's been going on, Governor Brown in California signed a bill directing utilities to plan for storage/DERs and other technologies for peak demand. Right?
This is now a law that got passed on October 12th of this year, so you're now getting governors who are saying, "Non-wires alternatives and Grid Edge technologies are 90 percent cheaper than upgrading the grid," and that the dramatic increase from $6 billion a year to $14-plus billion a year in T&D infrastructure is a boondoggle, "We should stop investing in all that stuff, and we should just start investing in more of this intelligence on the Grid Edge so that we can actually make smarter decisions," and I think these acquisitions by Enel and other utilities is basically signaling that they are now ready for this new paradigm to start.
Stephen Lacey: For sure, but as we've mentioned, you can make the right investments at the wrong time. A lot of these companies that they're investing and are still doing incremental projects, and it's unclear if they're going to have a healthy long-term pipeline or become significant revenue-generating businesses for these utilities and maybe one-off acquisitions aren't financially draining.
For example eMotorWerks, the EV charging company that Enel bought through EnerNOC is just tiny compared to Enel's revenues. I mean, it's negligible, but if you start like jamming all these acquisitions into this E-solutions group and you don't have a cohesive thesis and you're trying to manage all these different teams without any of them being your core strengths, I wonder what the end result is.
We've seen GE struggle with this under its current business. It had to restructure because it jammed all these businesses together without a clear focus. Edison International had to restructure and lay off people because it did the same things, so I'm a little bit skeptical, borderline cynical. Even though I think they're approaching the right trends, I'm just uncertain about the timing or the approach.
Katherine Hamilton: Yeah, but, Stephen, I think this is different from those examples. A lot of this is cloud based data-driven, and EnerNOC is great at that, and this made total sense to get eMotorWerks into it. For a utility to do this, everything that they need to move forward in the future has to do with consumer engagement and it has to do with being able to use their ... the data that they collect in a smart way.
These companies like eMotorWerks, which is small, but this will be great because this will take their application, extend their footprint, allow them to grow. I mean, EnerNOC, which has been around for a while and has great policy chops, so they understand how to open up markets in the ISOs and in the states.
I think this is really smart for Enel to do that. I think it makes them the largest utility in Europe and North America, and I don't see other utilities doing much different. I think they are all going to be going on buying sprees because this is what they need.
Jigar Shah: The other thing here is that it doesn't actually matter whether these businesses are successful. I mean, Enel is in 30 countries across five continents with 64 million end users around the world. Right? They could just absorb the knowledge of these companies within their own operations and never actually sell any products to outside parties.
Stephen Lacey: Right, so you see these as important acquihires. Even if the initial focus is on the business model, you could potentially just shift toward using the knowledge from the team for something else?
Jigar Shah: Yeah. I mean, it is quite obvious to those of us who've been in this business for a while that these solutions are just extraordinarily powerful, but that the problem with them is that the only group they can really monetize these solutions are the utility companies, and the utility companies are painfully slow at providing lucrative contracts to these companies, so the better approach is just to sell yourself to a utility company and then you're not worried about selling lucrative contracts to that company.
Stephen Lacey: The reason why I'm a little bit skeptical is because Enel made this acquisition of EnerNOC, which is important because Enel had no demand response assets. It gives EnerNOC a better approach to the European market and it gives Enel an asset base in demand response here in the U.S., so good for both companies.
EnerNOC has been experimenting with distributed resources for five years now, first in enterprise software and then in batteries and in solar. Its partnership with SunPower hasn't done well. Its partnership with Tesla hasn't resulted in much deployment.
This trend of C&I customers wanting this multilayered technology approach to fixing their energy problems just doesn't seem to be sticking in the way people talk about it publicly, and so if you're using a company like EnerNOC to talk about layering all these solutions together for big customers, I don't see that a company like EnerNOC has actually successfully executed on that vision to begin with.
Katherine Hamilton: I think-
Stephen Lacey: I think that's like the root of my skepticism.
Katherine Hamilton: I think we need to separate out the technology from the application and service. I think what EnerNOC has been really good at is providing these services, and that's what the utility wants to do is layer all of that ability for customer acquisition to be able to provide certain applications rather than tacking on technology, which I think they have been less successful with.
Jigar Shah: Yeah, I would say that even more forcefully, which is that I definitely think EnerNOC has all these solutions, and they have pitched God knows how many people these solutions and they have executed them, but they have not gone and paid for them. Right? They're like ultimately, except for the polar vortex and a few sort of instances here and there, they get paid so little for the solutions that they're providing even though they're offsetting massive amounts of investment and offsetting massive amounts of other cost. The way in which they get reimbursed for their work is suboptimal, and now that they're within Enel, Enel like will actually just monetize it within Enel. They don't have to worry about negotiating with PJM and all those people for the scraps.
Katherine Hamilton: Yeah, absolutely.
Stephen Lacey: That's a great point.
Katherine Hamilton: The margins for demand response are so small, and I can see this happening with a lot of other companies because the services that they provide are really important and have a lot of value, but I do think that they have to fight so hard for every nickel that having it part of a utility is going to make a lot of sense.
Stephen Lacey: Yeah. I mean, in theory, you can combine forces with a company like EnerNOC and a behind-the-meter company like demand energy. EnerNOC has the knowledge of these regional markets and, as the rules evolve to support an aggregated behind-the-meter batteries, you could imagine EnerNOC being able to execute that strategy with the project development expertise of demand energy, which has been like on the ground level of this trend.
They understand what customers want and they had ... do have a track record, and I could see, in theory, those, the forces of those two companies combining to create an interesting offering.
Jigar Shah: Yes. We're glad we convinced you.
Stephen Lacey: If you want more on this utility shopping spree among European power providers, go read Elta Kolo's piece. She has an analyst briefing that I think describes this trend very well.
We're going to turn now to the latest in the ongoing solar trade case here in America. Is the sky falling yet? On Tuesday, International Trade Commissioners issued their recommendations for penalizing imported crystalline silicon solar cells and modules. There are actually three different proposals on the table. The companies that originally filed the complaint about imports and even SolarWorld thought the recommended levels were way too low, but opponents to tariffs led by the Solar Energy Industries Association said that they would still destroy demand.
If you need background on what this trade case is all about, go back and listen to our August 18th episode. For more forward-looking analysis, we've invited MJ Shiao, the head of Americas Research at GTM, here to talk about what trade commissioners are proposing and, more importantly, what the consequences are for solar.
We actually recorded this interview yesterday, but we faced a glitch with our remote recording software, so we're rerecording this conversation with MJ without Katherine and Jigar sadly. My co-hosts will be back at the end of the show to close us out, but we thought it was important to bring MJ back on because he's been following the implications of these proposals very closely.
MJ, welcome. Thanks for being here a second time.
MJ Shiao: Thank you, Stephen. I'm always happy to be here.
Stephen Lacey: Let's summarize these suggested penalties on imports. They're not really as steep as proposed by Suniva and SolarWorld, but they would still have a drag on demand, particularly, utility scale solar. I don't know if we need to walk through everything in crazy deep detail, but it's important to get an idea where these proposals range, so talk about the ranges and the structure of these three different proposals from the commissioners.
MJ Shiao: If we look at the landscape of the recommendations by these commissioners, you have four ITC commissioners who have recommended a set of three recommendations, two of them which are a combination of tariff-rate quotas on imported cells and a blanket tariff on modules, and one is a hard quota for imported cells and modules.
We can go into the actual levels in a little bit, but I think the key takeaways here is, first of all, Stephen, as you mentioned, they fall between what SolarWorld and Suniva were asking for, but also, of course, above what SEIA was asking for in terms of not having any tariffs at all.
The second thing is that they're, again, they're pretty in line with the statute at hand. Section 201 of the Trade Act actually explicitly says that, "Recommendations can include quotas, tariff-rate quotas, tariffs in terms of these safeguards." I think one important thing to keep in mind, too, is that these tariff are in the form of an ad valorem tariffs, which basically means they're made on a percentage basis.
SolarWorld and Suniva really wanted a dollar per watt based tariff for a number of reasons, and what we see here is that the ITC has decided not to go that route and instead gone with the more traditional percentage based tariff, which is important because it allows for the tariff rate not only to be stepped down, but also as cost and price step-down that also decreases the impact of the tariff as well.
Stephen Lacey: Unless you're like an international trade geek or are specifically watching this case closely, there's a chance that things like ad valorem, trade adjustment assistance and tariff-rate quota are not the most meaningful terms, so let's translate these percentages into maybe a cost metric that people can understand.
If you look at the recommended tariff levels, which are, again, around 30 to 35 percent, that translates to about 10 to 12 cents, by your calculations, per watt. That's kind of in line with previous tariffs set by the Commerce Department.
Talk about those calculations and the potential impact on that 10-to-12-cent per watt penalty.
MJ Shiao: Yeah, absolutely, that's exactly right. These tariffs would basically start out in year one as around 10 to 12 cents a watt, which exactly is around what we saw the impact initially for the first round of anti-dumping countervailing duty tariffs that were put in place on Chinese and Taiwanese products, and we're really basing that off of a forward-looking price in sort of the high, mid to high 30s to low 40 cents a watt for modules going forward.
Now, that also steps down. Again, there is a step-down in the rate of the tariff in each of these recommendations, as well as the costs of solar panels are expected to fall as well, so, by the fourth year, so in 2021, you would expect to see the impact to be closer to four cents to 10 cents a watt, again, depending on which recommendation you're looking at.
Stephen Lacey: With the more modest recommendation, at the end of that step-down, you're actually looking at module prices that are lower than they are today, right?
MJ Shiao: Yeah, absolutely. That's right.
Stephen Lacey: Potentially?
MJ Shiao: Potentially.
Stephen Lacey: Yeah.
MJ Shiao: It's not across the board, but there is that possibility, of course.
Stephen Lacey: Okay, so the tariff levels are not nearly as potentially disastrous as feared by the solar industry, but they still would have an impact. On the residential side, you're talking about cutting demand back in a few marginal states, a handful of marginal states, and it would ... Those tariff levels would impact utility scale developers that have much thinner margins and are way more cost sensitive.
Tell us about the potential impact.
MJ Shiao: Yeah, that's absolutely right. You've hit the nail on the head.
In terms of total deployments, if we look at some modeling exercises that GTM Research pulled together, we looked at what the effect on potential deployments would be at a 10-cents-a-watt tariff level with some step-downs, and while that doesn't perfectly align with these recommendations, it's pretty close.
In that scenario, we saw about a 9 percent reduction in potential installations versus our base case scenario of no tariffs at all, and so that's certainly an impact, but a lot of companies will be able to weather that storm.
Now, utility will be slightly more impacted. You have a lot of utility PPAs that were contracted with the expectation of much lower module pricing. Some of these companies may be able to make it work by shaving cost in other areas of the system, but some of these projects and their cost just may not be able to pencil with even just a modest tariff here so, but, in any case, that impact is still, again, not 50 percent as would have been the case with SolarWorld and Suniva's petitions on the proposals, but rather more, again, in that sort of 10 percent range. That is pretty ... holds pretty true across all segments nationally.
Stephen Lacey: Yesterday, you held a webinar and you walked through some of these potential demand scenarios. I'm presuming you got questions from participants. What are folks asking about?
MJ Shiao: Everyone wants to know what's going to happen, what's on Trump's mind, of course.
Stephen Lacey: That's the hardest thing to answer.
MJ Shiao: Right. I mean, I like to tell people, if I knew what Trump was going to do, I'd probably be much more than just a mere solar analyst, but, yeah, I mean ... but, seriously, I think a lot of people are confused as to what's going to happen from here.
One of the most popular questions was, "We have these three recommendations. Does the ITC have to come together with one single recommendation?" and the answer is, "No," and, even further to that, it might not even matter because, again, there's a lot of discretion that the executive branch has from this point on in terms of whether they take the recommendations as is, whether they reject it outright or whether they choose to modify and change the recommendations and tweak them slightly or in a large way.
In other words, this is where the fun begins. This is where we're going to see the circus of folks lobbying the U.S. trade representative, the Department of Commerce, people close to Trump. Congress itself could play a role as well, so it's ... There is going to be plenty of activity from hereon now.
Stephen Lacey: The lobbying effort is more like a game of leapfrog. You just hope that you land in the front because the last person that talks to Trump is probably going to be the most influential.
MJ Shiao: Yeah, I mean, certainly, and that's a question, too, right? To what extent does the White House care about this issue?
We've seen leaks that have come out as reported by Axios that the White House wants tariffs and, in particular, wants tariffs on solar, but will they just simply take the recommendations and call it a win? Will they want to change them and make them more stringent? Will they, perhaps, be convinced to lower them by some of the efforts by SEIA and other folks to try to lower these tariffs? That remains a question.
To what extent will they have the capacity to deal with this, right? They're launching corporate tax reform right now, and Trump also seems to be very capable of getting himself embroiled in a number of controversies on any given moment. The ITC portion of it, which was definitely confusing and complex, is probably the easiest part of all this.
Stephen Lacey: Okay. We enter the next phase of this, and we have to figure out now what the Trump administration is going to do.
As MJ said, everybody's asking that question and nobody has the answer. It really does come down to the last person to lobby Trump. Actually, this story feels like it's been going on for a long time, but it's pretty amazing how quickly this process unfolds. I mean, this is a much different process than the previous solar trade case we dealt with in 2011, 2012 at the Commerce Department.
This is a pretty fast process, wouldn't you say, MJ?
MJ Shiao: Oh, yeah, I mean if you think about the original trade case, too, I mean it took, I wanna say, nearly a year for things to be decided and, not only that, there were critical circumstances or essentially retroactive tariffs. You had retroactive tariffs on something that you didn't even know what the result was going to be. It was pretty disruptive especially at a time where we also had an extreme import. We had an extreme import as a result of people trying to lock in the cash grant at the time, so it was pretty chaotic then.
I think this is slightly more chaotic just because of the current environment and the decision-making process as well as, again, just how much solar has grown even in those past few years.
Stephen Lacey: MJ Shiao is the head of Americas Research at GTM. He and his team are going to be trying to make sense of that uncertainty. When it becomes available, we'll post the webinar that he held yesterday in the show notes at greentechmedia.com.
We appreciate your time. Thanks, MJ.
MJ Shiao: Thank you, Stephen.
Stephen Lacey: Oh, let's tell our listeners something they may not know. Jigar, what's your story this week?
Jigar Shah: As many of you know, Tesla reported their earnings this week, and their earnings were disappointing. They had their I think largest loss ever of $671 million, and the Model 3 has been pushed out, and I think Elon Musk is camping on the roof of the Nevada factory because it got pushed out because the battery packs are not coming together nicely and all that stuff, so I definitely don't think it's been a great quarter for Tesla, but I'm very hopeful.
On the positive side, it would say that Tesla really is committed to figuring out what they can do in Puerto Rico.
Stephen Lacey: Can you remind us of that work that they're doing in Puerto Rico?
Jigar Shah: They're taking essential infrastructure like hospitals, community centers, other places and putting in modest solar-plus-storage systems in to able to provide people with basic lighting, cell phone charging, TVs, other sort of essential services, which, right now, people are using expensive diesel generators that can cost between $1 and $5 a kilowatt hour for power for retailer customers, and so it's really great service. I'm really glad that he's so committed to Puerto Rico.
Stephen Lacey: The Tesla story is interesting. Going back to the problems that the company is facing, first of all, I wouldn't call the Model 3 bottlenecks necessarily a problem because any sensible person who listened to Elon Musk knew that you can push out his timeframe by three to six months. If you're a smart investor, you know that he's probably not going to hit that exact timeframe.
Investors, of course, have a different way of evaluating that company. Yeah, the stock did take a little bit of a hit after he announced those delays, but I am certainly not surprised by those delays, but, if in three to six months you ... he comes back to investors and talks about a much more serious delay, then I think we really start asking questions about how their manufacturing process is ramping up.
Jigar Shah: Oh, we talked about this on the podcast, right, when Ashlee Vance was on. I mean, there's no way that he actually meets any of his numbers. Right now, he's still signaling that a 100,000 cars sold this year, I think, and he wants to be at 500,000 cars sold next year. That is not going to happen.
Stephen Lacey: Katherine, over to you, I'm presuming you have a political story or something this week.
Katherine Hamilton: I do, indeed. Everybody has been biting their nails waiting for the chairman of the House's tax-writing committee, Ways and Means Chairman Brady, to release his tax proposal, and it did come out right before we taped, so I have a few pieces of information about that.
Now, remember, this is the House proposal. It's going to be marked up in committee next week, so it could change a bit then. I doubt if it'll change on the floor because they won't, probably won't allow any amendments, but then the Senate bill will be completely different. This is something to watch out for because this is definitely a marker, so a few key things. The corporate rate has been lowered, and that actually could affect the price of PPAs and the ability to get certain returns that would affect probably wind power more than anybody else.
The energy tax credits like the production tax credit and the investment tax credit were supposedly left based on the omnibus deal from 2015. However, there were some key things that were changed. One is that the production tax credit inflation adjustment will be repealed, so it would revert to 1.5 cents per kilowatt hour for the entire 10-years period, and this is anything that begins construction after yesterday, November 2nd, and then there are also has to be a continuous construction. There's a continuous construction language that's pretty gnarly, too, on the solar side. That construction language is true as well on the investment tax credit. Also, that 10 percent permanent would be cut after 2027 in this bill.
The good news is that those "orphan" credits for fuel cells, geothermal, distributed wind, those were put back in. CHP was put back in, but at a lower rate. This is something that is going to have ... would have, if it went into law, a tremendous impact on solar and wind, in particular, I think the wind industry. I don't think this will happen in the Senate bill, but something the whole community is going to have to fight back on pretty hard.
Stephen Lacey: Fight back how? What happens next?
Katherine Hamilton: The next thing is that the House will mark up next week in Ways and Means, and the problem is that the chairman can say, "Oh, I upheld the deal from 2015 because, technically, a lot of the provisions will stay the same, but some of the ... what they have done do it will gut it essentially," so it's, yes, they can message that it's still there, but there will be ... it will be severely damaged.
Hopefully, someone in the, a Republican, will offer an amendment to change that or correct it. I think, at this point, this is sort of the worst case scenario, so it's going to ... it can only get better and that the Senate bill will, in fact, be better, too.
Stephen Lacey: I got a text as you were describing that from Julia Pyper, our senior editor who's following the story as well. She's updating our story from yesterday on the potential changes in the GOP tax plan, and, now that we actually have some proposals to work with, we'll update that story and then we'll continue covering this.
Jigar Shah: Don't you think that the fact that this tax plan has no intention whatsoever of being bipartisan means that it's dead?
Katherine Hamilton: It'll get through the House with no problem, I don't think.
Jigar Shah: Everything gets through the House.
Katherine Hamilton: The Senate will hinge on a couple of key people because they don't have a huge majority, but they do have a majority, so ... and they only have to get 50 votes, so ... and Pence ... because Pence can break the tie, so, as long as they can get 50 plus Pence, they could pass it in the Senate.
Stephen Lacey: 50 plus Pence. That sounds like a monetary value.
Jigar Shah: It's 1/12 of penny.
Stephen Lacey: Yeah. There has been an alarming update in the academic spat over Mark Jacobson's 100 percent renewable energy scenario, and, in fact, the debate over that scenario has jumped out of the academic work and into the courts. Mark Jacobson is suing Christopher Clack, the lead author of this peer-reviewed study critiquing Jacobson's modeling. He's suing him for $10 million. The suit was filed in a D.C. Superior Court in late September, and the documents were just released.
Jacobson claims that Clack knowingly spread false information over his model on hydropower in his 100 percent renewable energy scenario. He names Clack and the National Academy of Sciences as the defendants. None of the other co-authors on Clack's paper were named.
I don't care where you stand on this issue. This should bother you. It bothers me. I think it's consistent with the way Jacobson has approached the entire debate over a 100 percent renewables. If you disagree with him, he lashes out, he questions your integrity and funding, or he blocks you on Twitter. This is an issue that belongs in the pages of academic journals, not in a courtroom.
We just have this conversation at the beginning of the show about the threats that scientists are facing. When a well-known researcher has to resort to this kind of lawsuit because of a well-argued, peer-reviewed critique of his work, again, whether you agree with it or not, we should be equally alarmed.
Jigar Shah: I think Mark Jacobson has become the Donald Trump of our industry.
Stephen Lacey: I think that that is a fair characterization.
Jigar Shah: Didn't he? Didn't Donald Trump sue Bill Maher for calling him an orangutan?
Stephen Lacey: Yeah, and he's threatened a lot of journalists. From what I understand, one of the only journalists he's ever sued was a person who claimed that his net worth was lower than he said. He's taken a beating, and journalists have found out all sorts of salacious things about him and his career, and he's never followed through the lawsuit, unless someone has actually questioned how much he's worth.
Jigar Shah: Yeah. No, I just ... I feel bad. I think Mark Jacobson's a good man, and I certainly have worked collaboratively with him in the past, but I think his actions after this paper have just been mystifying to me. I think, if he literally did nothing, like life would just go on.
Stephen Lacey: Okay, we'll close it out there. We're going to have a special episode next week because travel is going to be taking over the schedules for both me and Katherine. We've got another special episode of "Watt It Takes," which is this event that we're putting on ... Powerhouse, the incubator and accelerator in San Francisco is putting it on, and we're partnering with them as a media partner, and they're interviewing all these folks about how they built their companies.
This one's pretty cool because Andrew Birch, the co-founder and CEO of Sungevity, was interviewed by Powerhouse's Emily Kirsch, and he talks about like the challenges that the company faced and what happened going into bankruptcy, and there's a lot we can learn from that conversation. I know our reporter Julian Spector is catching up with Andrew Birch as well, so we'll have a companion story to that, and we'll release the podcast, so that'll be quite interesting.
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Katherine, you're off traveling next week to the Middle East, right?
Katherine Hamilton: I am. I'm going to be in Dubai co-chairing a meeting of a cohort on the future of energy. I love these meetings because there are people all over the world who agree that we need to do something about climate change.
Stephen Lacey: For sure. Safe travels. Enjoy that trip.
Jigar, since we won't talk to you until the following week, what are you going to do with your extra couple of hours?
Jigar Shah: I don't know. It's so fascinating to watch the weirdness in Washington, D.C. I might just have to sit in front of CNN and watch the weirdness.
Stephen Lacey: Or you could just pull up a lawn chair, grab some popcorn and look out over the sea.
Jigar Shah: Pull up an Adirondack chair and grab some gin and take care of business.
Stephen Lacey: Yeah. I do miss D.C. Sometimes, I wish I was right there in the middle of the craziness.
Katherine Hamilton: Come visit.
Stephen Lacey: Yeah. I'll be in Austin next week for GTM's Power & Renewable Summit. Remember that Energy Gang listeners do get 20 percent off the registration, so, if you still want to go to that, go to greentechmedia.com/events and use the promo code EnergyGang, all one word, EnergyGang, and you'll get 20 percent off.
Okay, with Katherine Hamilton and Jigar Shah, I'm Stephen Lacey, and we are The Energy Gang, a production of greentechmedia.com. Catch us soon.