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11. PG&E: Market and Policy Perspectives on the First Climate Change Bankruptcy

Author:
John Macwilliams, Sarah Lamonaca, and James Kobus
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Center on Global Energy Policy
Abstract:
The Pacific Gas and Electric (PG&E) bankruptcy, which was caused by liabilities resulting from massive wildfires, has widely been called the first climate change bankruptcy. It will likely not be the last, as climate change exacerbates natural disasters, leading to more frequent and intense wildfires, storms, and flooding. Wildfires alone could become up to 900 percent more destructive in certain regions by midcentury, and utility assets will also be increasingly exposed to threats stemming from hurricanes, rising sea levels, and other climate-related events. These extreme weather events will increase costs to utility-sector stakeholders, including investor-owned utilities, state and local governments, ratepayers, and taxpayers. These risks could place financial stress on utility companies, drive up electricity rates, crowd out essential investment in renewable energy and grid upgrades, and disrupt service. In this paper, Columbia University’s Center on Global Energy Policy reviews and analyzes the PG&E bankruptcy, assesses how capital markets have reacted to the bankruptcy through the lens of valuations in the US utility sector, and discusses policy implications of California’s recent legislative response to wildfire risk. This paper examines market indicators to assess investor expectations of climate risk exposure and likely cost allocation. Neither debt nor equity markets suggest widespread concern about climate risk in the utility sector. In the absence of strong market signals to encourage climate risk mitigation, the authors find that policy frameworks are needed to ensure that companies make necessary preventative investments and to define how costs will be allocated among stakeholders. This paper also reviews a recently passed California bill aimed at achieving these objectives and the lessons and best practices it offers for other policy makers. In short, the paper finds the following: Market indicators suggest that the California wildfires and subsequent PG&E bankruptcy have not caused imminent concern about climate risks in the utility sector. Equity valuations for the sector remain strong, with a utility stock index trading at a higher-than-average premium to the market benchmark. In credit markets, regulated utilities in the United States have raised more than $50 billion of corporate debt in 2019 to date, and borrowing spreads are currently below historical averages. There are several reasons why markets may not reflect widespread climate risk to utilities, despite the scientific evidence around likely future damage. Investors may believe that cost increases from climate change will occur too far in the future to materially impact the present value of their investments. Even if investors believe that climate change risks are material to valuation, they may also believe that such risks will not be considered by other investors for some time. Investors may be viewing wildfires as a California-specific risk, though the regional skew of wildfires is likely to shift significantly in coming years. They may lack the information or modeling tools for assessing the likelihood and geographic dispersion of high-impact tail events, such as the wildfires that PG&E faced. Financial markets may also reflect the belief that the costs of climate change in the utility sector will fall predominantly on ratepayers, insurance companies, and/or taxpayers rather than investors, and therefore investors may not view themselves as materially exposed. California’s recent creation of a wildfire insurance fund with contributions from both ratepayers and companies provides important policy lessons for designing comprehensive frameworks to allocate climate damage costs. These include the strengthening of both regulatory and corporate climate resilience expertise, mandating preventative investment as a prerequisite for cost-recovery mechanisms, defining utility financial exposure for climate damage situations, and providing cash for utilities to provide essential services when facing large disasters. The policy also presents some potential pitfalls that may be instructive for other state policy makers. The legislation sets aside large reserves for future damage, a necessary measure, but one that will result in higher electric bills. The bill does not allow utilities to earn a return on safety-related spending, which broadly diminishes incentives for proactive climate mitigation investment. The potential insufficiency of the wildfire fund also creates uncertainty about future cost allocation. Finally, failing to reform the California legal framework that allows utilities to be held liable for damages they did not cause perpetuates risks for companies and ratepayers. If the first climate change bankruptcy is indicative of a new reality, it is not that utilities are going to go bankrupt overnight. Rather, climate disasters will increasingly add financial stress to utility-sector stakeholders, as costs accumulate from both acute events and damaging extreme weather impacts. Adapting the regulatory bargain for a climate-exposed future will require lawmakers, regulators, and shareholders to develop new approaches and new incentive structures to ensure an accountable, robust utility sector. Moreover, while climate change is already presenting real financial challenges to utilities, it will not be the only sector to face large climate-driven costs. Other corporate actors can look to the utility experience to better understand how policy makers, investors, and companies will respond to the growing financial threat from climate change.
Topic:
Climate Change, Economics, Gas, and Electricity
Political Geography:
United States and California

12. China-Pakistan Economic Corridor Power Projects: Insights into Environmental and Debt Sustainability

Author:
Erica Downs
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Center on Global Energy Policy
Abstract:
Pakistan is increasing its use of coal to generate electricity at a time when many other countries are reducing coal use in order to cut greenhouse gas emissions or pollution. China is helping Pakistan expand its coal-fired generation capacity through the financing and construction of coal power plants as part of the China-Pakistan Economic Corridor (CPEC). CPEC is a component of Chinese president Xi Jinping’s Belt and Road Initiative (BRI), which aims to forge greater global connectivity in part through infrastructure development. Nearly 75 percent of the generation capacity of CPEC power plants is coal-fired. Pakistan’s National Electric Power Regulatory Authority (NEPRA) expects that CPEC coal power plants will be largely responsible for the projected increase in the country’s coal-fired generation capacity from 3 percent as of June 30, 2017 (fewer than six months after the first CPEC coal plant began commercial operation), to 20 percent in 2025. As part of its series on the Belt and Road Initiative, Columbia University’s Center on Global Energy Policy initiated research into the CPEC power sector projects, which account for the majority of the cost of CPEC projects. This paper examines two of the key concerns critics have about the BRI: environmental sustainability and debt sustainability. Concerns about environmental sustainability center on the ways in which an expansion of the amount of electricity generated globally by fossil fuels, especially coal, will increase greenhouse gas emissions, making it more difficult if not impossible to meet the emissions targets in the Paris Agreement. Concerns about debt sustainability focus on whether China’s lending in support of infrastructure projects will lead to problematic increases in debt, with some analysts maintaining that Beijing is intentionally seeking to push countries into debt distress in an attempt to gain control over strategic assets or decision-making in borrowing countries. The main findings of this study are threefold. First, the heavy focus on coal in the new generation capacity added by the CPEC power projects stems from both “pull” factors from Pakistan and “push” factors from China: The CPEC coal power projects reflect Pakistan’s long-standing goal of diversifying its generation mix away from fuel oil toward domestic coal in an attempt to decrease generation costs and conserve foreign exchange. They also reflect the perception of the administration of former prime minister Nawaz Sharif, whose pledge to end power outages helped his party win the 2013 election, that coal was the best option to bring on a large amount of new capacity in the short term. Although Pakistan has vast renewable energy potential, solar and wind power were considered too expensive and difficult to integrate into electric grids. Meanwhile, Chinese companies had several reasons to sell coal power plants to Pakistan, including exporting rather than warehousing excess power generation equipment, financial incentives provided by Beijing and Islamabad, and the ability to execute projects fast enough to help Sharif eradicate the blackouts hurting Pakistan’s economy before he stood for reelection in 2018. Second, there is a mismatch between the dominance of coal in the CPEC power generation mix and Beijing’s recent emphasis on green development as an important feature of the BRI. This gap between Beijing’s rhetoric and the reality on the ground can be explained in large part by Pakistan’s preference for building coal-fired generation capacity. Ultimately, it is up to the host country to decide the composition of its electricity mix. The Chinese government has a long-standing reluctance to interfere in decisions of this type. Moreover, China regards some of the CPEC coal power plants as environmentally friendly because they use relatively modern technologies and are expected to emit fewer greenhouse gas emissions than the fuel oil plants Pakistan is replacing. Third, there is a risk that the CPEC power projects will add to Pakistan’s sovereign debt burden, but multiple factors indicate that any increase in sovereign debt from these projects is unlikely to be the result of a deliberate strategy on the part of China. Although the debt financing arrangements for CPEC power sector projects primarily involve loans from Chinese banks to project companies wholly or partly owned by Chinese firms, these projects may increase Pakistan’s debt because of sovereign guarantees issued by Islamabad to support CPEC power projects and the liquidity crisis in Pakistan’s power sector known as circular debt. That said, several aspects of the China-Pakistan relationship and the large stake that China’s government and companies have in the success of CPEC indicate that Chinese interests are better served by sustainable CPEC projects than unsustainable ones.
Topic:
Energy Policy, Regional Cooperation, Green Technology, and Electricity
Political Geography:
Pakistan, China, and Asia

13. Is there an anti-politics of electricity? Access to the grid and reduced political participation in Africa

Author:
Jennifer N. Brass, Kirk Harris, and Lauren M. MacLean
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Afrobarometer
Abstract:
Almost all African states face pressure to deliver improved public services to their citizens. In both emerging democracies and persistent authoritarian regimes, politics profoundly shapes how states distribute public goods such as roads, schools, health clinics, and electricity access (Briggs, 2014; Dixit & Londregan, 1996; Harding & Stasavage, 2014; Kramon & Posner, 2013; Min, 2015; Weingast, Shepsle, & Johnsen, 1981). But in addition to questions of how politics shapes distributive outcomes, scholars have recently turned to a new question: How does variation in public service provision subsequently shape political participation (Bodea & LeBas, 2016; Harding, 2015)? Here, the findings are less clear. Where some authors find that the receipt of public service provision stimulates participation (Bleck, 2015; Wantchekon, Klašnja, & Novta, 2015), others caution that service provision may actually undermine engagement or have no effect (Croke, Grossman, Larreguy, & Marshall, 2015; Kam & Palmer, 2008; Mattes & Mughogho, 2009). Most of this literature has focused on the political effects of the delivery of social welfare services, especially education. Meanwhile, the political effects of electricity provision have been largely overlooked. Electricity provision is important for political outcomes for several reasons. Historically, in some African countries, electricity provision was tightly linked to the independence struggle and to rights of citizenship (MacLean, Gore, Brass, & Baldwin, 2016). Yet despite these expectations, African countries continue to have the lowest rates of electrification in the world. Only about one-third of Africans have access to electricity (International Energy Agency, 2014), and only two-thirds live in a community with any grid access (Oyuke, Penar, & Howard, 2016), and these rates are much lower in rural areas in most countries (Leo, Morello, & Ramachandran, 2015).
Topic:
Education, Democracy, Public Policy, Public Sector, Electricity, and Public Health
Political Geography:
Africa

14. Mapping Power: A Collection of Insights on the Political Economy of Electricity in India's States

Author:
Navroz K. Dubash, Sunita S. Kale, Ranjit Bharvirkar, Ashwini K. Swain, Elizabeth Chatterjee, Hema Ramakrishnan, Jonathan Balls, Kalpana Dixit, Meera Sudhakar, Megha Kaladharan, Rohit Chandra, and Siddharth Sareen
Publication Date:
09-2019
Content Type:
Special Report
Institution:
Centre for Policy Research, India
Abstract:
This is a compilation of blogs by the authors of 'Mapping Power: The Political Economy of Electricity in India’s States' (Oxford University Press), edited by Navroz K. Dubash (Centre for Policy Research), Sunila S. Kale (University of Washington), and Ranjit S. Bharvirkar (Regulatory Assistance Project). Featuring analysis from the book, this compilation highlights the politics of electricity access and distribution in Uttar Pradesh, Andhra Pradesh, West Bengal, Karnataka, Maharashtra, Uttarakhand, Gujarat, Jharkhand, Tamil Nadu, and the National Capital Region in India.
Topic:
Energy Policy, Political Economy, Infrastructure, Social Policy, and Electricity
Political Geography:
South Asia, India, and Asia

15. Beyond Poles and Wires: How to Keep the Electrons Flowing?

Author:
Navroz K. Dubash and Ashwini K. Swain
Publication Date:
06-2019
Content Type:
Special Report
Institution:
Centre for Policy Research, India
Abstract:
India’s move to electrify every village and household in the country has been lauded as a success. Building on decades of targeted programmes and public investments by multiple governments, the country completed 100% village electrification in April 2018; a year after, it has electrified nearly all ‘willing’ households. Despite the time it took to get here, these achievements are important milestones in India’s development trajectory. But does connecting households to the electric grid resolve the electricity access challenge? The answer depends on whether electrons flow through the wires and whether all consumers are served equally and adequately.
Topic:
Development, Government, Infrastructure, Investment, and Electricity
Political Geography:
South Asia, India, and Asia

16. Resilient Power: A New Model for Grid Security

Author:
Lewis Milford and Samantha Donalds
Publication Date:
07-2019
Content Type:
Journal Article
Journal:
Fletcher Security Review
Institution:
The Fletcher School, Tufts University
Abstract:
In the last few years, Washington has been preoccupied with a debate about the security of the nation’s electric grid. The debate is as old as the grid itself: as electrification has come to drive all commerce and government, making it a key element of the country’s national security, what is the best way to protect the grid from terrorist, weather, or cyber-related threats or attacks? ​ As with most things of a political nature, where you stand depends on where you sit. ​ Proponents of coal, oil, and nuclear make the argument that traditional large-scale power plants are not only vital to grid stability, but also that this centralized generation model is the only economically or techno- logically feasible option.[1] It’s an old argument wrapped in new national security rhetoric, and it’s increasingly straining against the facts. More and more analysis and real-life examples show that distributed renewable energy, combined with energy storage technologies, can provide reliable power more affordably and reliably than the centralized generation alternatives...
Topic:
Security, Energy Policy, Infrastructure, and Electricity
Political Geography:
North America and United States of America

17. Offshore Wind Power Floating in its Industrial and Technological Dimension

Author:
Michel Cruciani
Publication Date:
07-2019
Content Type:
Special Report
Institution:
Institut français des relations internationales (IFRI)
Abstract:
Europe has become a frontrunner in fixed offshore wind. Can this success story be replicated with floating offshore wind, a technology that would lift the sea depth constraint and thus open up wider market opportunities? This research study looks at the main success factors for this emerging industry.
Topic:
Climate Change, Energy Policy, Electricity, Renewable Energy, and Wind Power
Political Geography:
France and European Union

18. Energy Access and Affordability Voluntary Action Plan for Latin America and the Caribbean

Author:
Philippe Benoit
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Center on Global Energy Policy
Abstract:
Argentina, President of the G20, recently released the “Energy Access and Affordability Voluntary Action Plan for Latin America and the Caribbean”, prepared by the Inter-American Development Bank (IDB) & Latin American Energy Organization (OLADE). CGEP Scholar Philippe Benoit served as the lead author of the report (on assignment from the IDB). The report builds on the previous G20 reports prepared for Africa and Asia-Pacific. The LAC Region enjoys access levels that are relatively high compared to other developing zones, but it faces important challenges in connecting the “last mile”. The Region also faces repeated extreme weather events which present the special challenge of access recovery (a major issue for Central America and the Caribbean, as well as Puerto Rico). One of the report’s innovations is that it extends the access effort beyond electricity and clean cooking to residential heat. The report also focuses on the importance of improving affordability of energy for the poor, as well as for other households and businesses.
Topic:
Climate Change, Energy Policy, Recovery, and Electricity
Political Geography:
Africa, Asia, Latin America, Central America, Caribbean, and Puerto Rico

19. Power of the River: Introducing the Global Dam Tracker (GDAT)

Author:
Johannes Urpelainen, Wolfram Schlenker, and Alice Tianbo Zhang
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
Center on Global Energy Policy
Abstract:
Dams are a major source of electricity globally, with hydropower generating 16 percent of the world’s total electricity and 71 percent of all renewable electricity in 2016. Many developing countries possess great untapped hydropower potential. Sub-Saharan Africa, for example, is estimated to have tapped less than 8 percent of its hydropower potential. Proponents of dams praise them as a source of low-carbon electricity, estimated to reduce annual emissions by about 2.8 billion tons of carbon dioxide equivalent. Dams also provide wide-ranging benefits in terms of flood control, irrigation, navigation, and job creation. But harnessing the power of the river comes with concentrated costs, from fragmenting the river system and destroying natural habitat to triggering ecological hazards and displacing millions of people. As the world is undergoing an energy system transformation toward renewable sources to combat climate change and meet emission reduction targets outlined in the Paris Agreement, understanding the costs and benefits of dam construction has important policy implications. In this project, the authors compiled a global geospatial database of dams, the GDAT, to enable rigorous research on the costs and benefits of dam construction. The project was motivated by the absence of a comprehensive, reliable, real-time, easy-to-use database on global dam construction. Such data could allow policymakers to make informed decisions on the use of hydroelectric power in the future, based on systematic evaluations of the costs and benefits of hydroelectric dams along the dimensions of energy access, climate change mitigation, water supply, ecological preservation, and population displacement. Below is a summary of findings: Globally, the authors identify 36,222 dams that are spatially concentrated along major river basins in Asia, North America, South America, and Europe. Compared to two widely used datasets, AQUASTAT and Global Reservoir and Dam (GRanD), GDAT has not only 144 percent and 419 percent more dam observations, respectively, but also more comprehensive attribute information, such as completion year, geographic location, main purpose, and reservoir and generation capacity. Dams are used for a variety of purposes, with considerable heterogeneity across continents. Worldwide, dams are mainly used for irrigation and hydroelectricity, representing 34 percent and 25 percent of the data, respectively. There are notable differences in the distribution of dam completion year across continents. While most developed countries in North America, Europe, and Oceania have witnessed a decline in dam construction since the 1970s, developing countries in Africa, Asia, and South America are experiencing a continued increase in the number of dams currently planned or under construction. GDAT makes three important contributions: First, to the best of the authors’ knowledge, no prior effort has been made to consolidate official records with existing datasets such as AQUASTAT, GRanD, and World Resources Institute (WRI). By collecting and compiling primary data from administrative sources and secondary data from existing databases, the authors have offerred the most comprehensive geo-referenced data on worldwide dam construction to date. Second, through extensive cross-checking and manual validation, the authors fill in important data gaps on key attributes and correct erroneous observations in previous datasets. Third, existing datasets are often static and not frequently updated. Efforts are underway to develop a framework for making the data collection and compilation process easily reproducible, so that it can be updated on a reasonable time interval to facilitate intertemporal analysis. Upon publication of academic research papers, the authors are planning to release the entire dataset and documentations to the public, free of charge.
Topic:
Climate Change, Water, Displacement, Electricity, Renewable Energy, and Dams
Political Geography:
Africa, Europe, Asia, South America, and North America

20. Electricity provision and tax mobilization in Africa

Author:
Moussa Blimpo, Justice Tei Mensah, K. Ochieng’ Opalo, and Ruifan Shi
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
Afrobarometer
Abstract:
In this paper, we provide evidence on how the provision of social infrastructure such as reliable electricity can be leveraged to increase taxation in developing countries, particularly sub-Saharan Africa (SSA). First, using comprehensive data from the latest round of the Afrobarometer survey, we estimate, via the instrumental variable approach, the effect of access and reliability of electricity on tax compliance attitudes of citizens in 36 SSA countries. Evidence from the paper shows a significant positive effect of electrification on tax compliance attitudes with potentially strong externalities. Also, we find that reliability of supply is crucial in explaining the impact of electricity access on attitudes toward taxes. Second, we provide suggestive evidence on national identity as one channel driving this impact. Access to social amenities such as electricity induces a sense of national identity among citizens, thereby incentivizing them to contribute, through taxes, toward the functioning of the state.
Topic:
Nationalism, Identities, Tax Systems, and Electricity
Political Geography:
Africa and Sub-Saharan Africa