The renewable power space is heading for a very bad year in the US and Europe, as supply chain issues and raw material inflation will impact not only the amount of business that gets completed, but also the margin on that business. The trade issues between the US and China on solar panels have essentially brought the industry to a halt for the moment and suggests that all forecasts of the growth in renewable power contributions in the US in 2022 are too high, and consequently demand estimates for natural gas and coal for power generation are too low – see out comments in the energy section of today's daily report. The EIA forecast below likely fails to take into account the current woes and if governments, at the federal and the state levels act on the information in the chart they may be unprepared for some power shortages later in the year. Overestimation of the rate of renewable power installation as well as its operating rate is responsible for many of the current power shortages that we see in most regions.
Source: IEA – Renewable Market Update – May 2022
One of the topics that were front and center in the CCS project and project funding debates yesterday (at the Hart Energy Transition Capital Conference) was the time taken to get permits and the work that needed to be done to prepare a permit application. Talos Energy specifically, has one target start date for a CCS project that looks like a stretch on this basis. The lengthy approval process with the EPA and the risk that the EPA will soon be overwhelmed with permit applications – not the case today – is leading to increasing calls for the EPA to grant primacy to the states on Class 6 well approval, as covered in the headline below. If this happens, we may see a shorter timeline to approval, but it is unlikely that the states would be any less stringent on the work needed to be done to prove that the project does what it sets out to do – volume, containment, no impact on the environment (contamination, seismic events, etc.). This is a significant body of work for every project and while an improved approval process might knock as much as a year off a timeline from concept to approval, that will likely only take it from 4 years to 3 years. For more insight see this week's ESG & Climate report titled "Oil and Gas Necessary Long-Term – The Sector Needs Friends".
Source: Talos Energy, NGI, 2022
