A Look Back at 2016: The Year of Transition

A tumultuous election year that was marked by market turmoil, the events of 2016 clearly showed that big change is afoot for the power sector.

Many of POWER's bold predictions for 2016, such as that the near-simultaneous surge in U.S. natural gas production and recent enactment of environmental rules would reshape the U.S. power sector, and that clean energy drivers would prompt diversification have come to be. But some events that have characterized 2016 were unprecedented and so significant, they are sure to send ripples well beyond 2017.

High Drama on the Legal and Regulatory Front

Twelve months ago, the power sector was emerging from the volatility of 2015, a year that was characterized by landmark decisions and rules, most prominent among them, the Environmental Protection Agency's (EPA's) promulgation of the final Clean Power Plan. In 2016, the legal and regulatory front saw tempered, albeit highly significant, activity.

None was as dramatic as the divided U.S. Supreme Court's issuance in February of an unprecedented one-page order to stay implementation of the Clean Power Plan, pending a decision on its legality in the D.C. Circuit Court of Appeals. In September, after a delay, oral arguments on the merits of the rule regulating carbon dioxide emissions from existing power plants were concluded before an en banc panel at the D.C. Circuit.The election of Donald Trump as president this November will likely have an adverse impact on the rule's future, however.

Meanwhile, in June, nearly a year after the Supreme Court sent the Mercury and Air Toxics Standards (MATS) back to the EPA, saying the agency had failed to properly consider costs during its rulemaking, the nation's highest court declined to review the D.C. Circuit's decision to leave the rule in place.

A number of prominent decisions also emerged from lower courts over 2016. The U.S. District Court for the Northern District of West Virginia ordered the EPA to file a plan and schedule to evaluate the consequences of its air pollution rules on jobs, finding for a giant coal company that is suing the agency for an alleged "war on coal" waged over the past five years. And, in a unanimous ruling in July, the U.S. Court of Appeals for the Fifth Circuit stayed a regional haze rule that had threatened to close up to 8.4 GW of coal-fired power capacity in Texas.

The EPA, which had issued a bevy of proposed and final rules in 2015, was seemingly subdued in 2016. Among its most significant actions was the finalization of significant updates to its Cross-State Air Pollution Rule.

Market Turmoil for Baseload Generators

For power generators, arguably, market conditions were more of a pressing concern in 2016.

The Energy Information Administration (EIA) started the year with a report warning that wholesale power prices across the nation plunged between 27% and 37% at major trading hubs in 2015 compared to 2014, noting that the drop was driven largely by lower natural gas prices. This year, the trend strengthened. Amid concerns that cheap natural gas, low power demand growth, increasing operating costs owing to state and federal rules, and market design issues were affecting bottom lines, several power companies raised alarms, withdrawing baseload generating capacity, or reconsidering participation in competitive markets (see slideshow: "An Alarming Trend Affecting U.S. Baseload Power").

Moving to become a fully regulated company, American Electric Power agreed to sell four Midwestern plants-totaling 5.2 GW-in September, following FirstEnergy's announcement in July that it would sell or deactivate 856 MW of coal-fired generation in Ohio to reduce fleet operating costs. Coal plant owners continued the trend toward shutdowns and reduced operations that has characterized the last few years.

But gas plants suffered too. Calpine Corp. made headlines in January when it idled a 578-MW combined cycle gas turbine (CCGT) plant in northern California owing to market conditions, and La Paloma Generating Co.-the owner of a merchant 1,022-MW CCGT plant in California-in December filed for bankruptcy protection, citing regulatory policies and market forces that have depressed revenues.

Tumult for the Nuclear Sector

Struggling to stay profitable, meanwhile, the nuclear sector saw the permanent closure of the Fort Calhoun Station this October. Market conditions also doomed Entergy's Palisades nuclear power plant; it will permanently close in October 2018. And in a shocker, Pacific Gas and Electric announced it would permanently shutter Diablo Canyon by 2025 under a renewables-boosting initiative. Such closure announcements have racked up since October 2012 (see slideshow: "U.S. Nuclear Plant Closures").

On August 1,New York's financially struggling upstate nuclear power plants -Exelon's 610-MW Ginna and 1,761-MW Nine Mile plants, and Entergy's 838-MW FitzPatrick plant (which Exelon agreed to acquire for $110 million)-received a much-needed lifeline with passage of the New York State Public Service Commission's Clean Energy Standard. The measure has been legally challenged in federal court, however, by a group of generators, including Dynegy and NRG Energy, which argue the plan interferes with wholesale power prices in violation of the Federal Energy Regulatory Commission's authority over interstate power sales. In particular, they point to a case the U.S. Supreme Court decided earlier this year, Hughes v. Talen Energy Marketing, which struck down a subsidy program in Maryland on the same grounds.

But the legal haranguing didn't stop the Illinois Legislature from approving the Future Energy Jobs Bill (SB 2814) on December 1, a bill that Exelon Corp., a prominent supporter of the measure, says will help it keep its beleaguered Clinton and Quad Cities nuclear power plants open.

Finally, the U.S. nuclear sector marked the formidable milestone of putting online its first new nuclear unit in decades this fall: Tennessee Valley Authority's Watts Bar 2 began commercial operation on October 19. However, the future of the U.S. nuclear sector is hampered by eight pressing issues that need to be addressed immediately, as U.S. Energy Secretary Ernest Moniz said in October.

On the international front, the biggest nuclear story of 2016 emerged from France, where the discovery of widespread carbon segregation problems in critical nuclear plant components crippled theFrench power industry, putting 20 of the country's 58 reactors offline and under heavy scrutiny. A decision this June by UK voters to leave the European Union also portended implications for its nuclear sector, even as the government later, shakily, approved the $23.8 billion Hinkley Point C project. Meanwhile, as Vietnam cancelled a high-profile nuclear project-its first-after cost estimates for the plant nearly doubled, power-short South Africa pressed on with plans to build multiple nuclear reactors.

Carbon Commitments and the Coal Chasm

The historic Paris agreement reached in December 2015 was ratified by a sufficient number of countries, representing at least 55% of global greenhouse gas emissions, to bring the agreement into force this October. But in the wake of the agreement, a number of governments have moved to phase out coal-fired generation.

This October, France, which gets a mere 3% of its power from coal, said it would shut down all its remaining coal plants by 2023. Then, in early November, Canada's Liberal government announced a nationwide phase out of coal power without carbon capture and storage by 2030, though it later said it would allow the province of Saskatchewan to keep running coal plants beyond that deadline under an equivalency agreement. In November 2016, Finland also announced a plan to phase out all coal burning by 2030. Finally, a non-binding motion by the Dutch parliament in September 2016 to cut the country's carbon emissions 55% by 2030 has spurred lawmakers to contemplate retiring five remaining coal units in the Netherlands.

This year, too, China's once-booming coal power sectorfaced a staggering overcapacity-as much as 400 GW by 2020, according to some estimates-which has prompted its government to halt the construction of at least 30 coal-fired power plants.

New Complications for Natural Gas

After years of anticipation, U.S. exports of liquefied natural gas began, and continued in earnest this year. But record power burn and rapidly growing exports are colliding with flat production, and the U.S. natural gas market may be poised for a return to its traditional volatility, analysts warned.

For the first time in nearly 45 years, meanwhile, the EIA indicated that carbon dioxide emissions from natural gas could surpass emissions from coal, drawing renewed scrutiny of gas's environmental impacts. And in June, a number of experts from a variety of stake-holding entities cautioned that challenges with few solutions-from price volatility, to gas transport concerns, to rule uncertainty-may upend the nation's dependence on natural gas.

A Jolt for Renewables and Energy Storage-Good and Bad

In another major milestone for the U.S., Deepwater Wind and project partners put online the nation's first commercial offshore wind farm at Block Island, R.I.

The addition of solar photovoltaic capacity surged on, too, driven by net metering, solar leasing, new power purchase agreements, the rise of solar communities, and federal and state policies and tax credits. Yet a number of experts warned that this rapid growth has been problematic on many levels, and the industry continues to face hurdles that could stymie future projections. For the solar sector, 2016 was also the year that SunEdison, a giant solar project developer that had operational sites worldwide, dramatically collapsed after a liquidity crisis and sought bankruptcy protection. Spanish renewables and engineering giant Abengoa SA, financially crippled by Spain's volte-face on renewables subsidies in 2014, also sought bankruptcy protection.

On the energy storage front, though Massachusetts became the third U.S. state to establish an energy storage mandate this August, discussions by key stakeholders about the future direction of energy storage showed that the path is unclear.

Grid Security Concerns Propelled to Forefront

Raging in the backdrop of partisan politics that is typical of an election year were serious concerns about grid security. This year kicked off somberly with much hand wringing about a December 23, 2015, cyberattack-the first of its kind and scope-using malware that prompted a large-scale blackout in Ukraine. A U.S. interagency team later confirmed that external malicious actors deployed the "synchronized and coordinated" cyberattack that cut the lights for about 225,000 customers. This December, Ukraine authorities reported they were investigating another possible cyberattack on Kiev's power grid that may have caused another outage. In April, meanwhile, operators at RWE's Gundremmingen plant in Germany moved to shut down the reactor as a precaution after malware was discovered in the plant's fuel handling network.

The White House acted in February to issue a national action plan to enhance cybersecurity awareness and protections, including investing more than $19 billion in resources for cybersecurity. And this December, as the Central Intelligence Agency unveiled suspicions that Russia was involved in a cyberespionage and information-warfare campaign that was devised to disrupt the 2016 presidential election, the U.S. and Canada released a joint strategy to thwart the growing threat of cyberattacks on the North American electric grid.

The Election and a Shake Up

Perhaps 2016 will be most remembered for its tempestuous presidential electoral campaigns, and the ensuing election of Donald J. Trump. A Republican who will nominate a Supreme Court justice to replace Antonin Scalia,Trump has been unclear on specific energy and environmental goals, though he has made clear that he doesn't view global warming as a significant issue, and he campaigned on a coal industry revival. That means a likely demise of the Obama administration's Clean Power Plan and a repudiation of the Paris agreement.

Trump's cabinet picks are more telling of what it portends for energy and environment in the U.S. To head the EPA, Trump picked Oklahoma Attorney General Scott Pruitt, a leading figure in several state-led lawsuits against the agency. Rick Perry, Texas' former governor, was nominated to oversee activities at the Department of Energy as energy secretary. Meanwhile, Trump chose Ryan Zinke, a freshman from Montana who won a second House term in November's election,to head the Department of Interior. Another notable energy-related pick is Exxon Mobil CEO and multi-millionaire Rex Tillerson for secretary of state. (For more, read: "Is There an Explanation for Trump's Picks?")

The election's surprising outcome sent the Obama administration scrambling to protect its legacy. The EPA moved to abandon interagency review of its model carbon trading rules to make the draft rules and associated documents accessible by states looking to implement carbon-trading programs. However, it also backed away from making a definitive statement on the impacts of hydraulic fracturing on drinking water resources, saying it lacked sufficient data to quantify the severity or frequency of adverse effects.

Industry, too, has been cautious about Trump's promises. In December, Robert Murray, CEO of Murray Energy Corp., told POWER that he had asked Trump to "temper his comments" about bringing back the coal sector.

"It will not happen," he said.

To browse POWER issues from 2016, and to learn more about these and other topics, take a look at our archives. Here's to a fruitful 2017. Look for more on what to expect next year in POWER's forthcoming January 2017 issue.

-Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)

The post A Look Back at 2016: The Year of Transition appeared first on POWER Magazine.