An Ignoble Experiment

2. DOE, Sprint partner on rooftop hydrogen fuel cells

The reaction from the energy industry to President Obama's State of the Union address Tuesday night is in and the results are mixed.

Advanced Energy Economy, for example, lauds President Obama as the first in 50 years to be able to claim emerging energy independence.

"That didn't happen by accident, but by the efforts of innovators combined with smart policies. Thanks to these efforts, the U.S. controls its own energy destiny for the first time in a generation," said Graham Richard, CEO of Advanced Energy Economy.

He warns, however, that there could be rough waters ahead.

"The danger now is not dependency. It is complacency. As we emerge from this long recession, we need to continue to make progress toward energy systems that are better and smarter. The established businesses and committed entrepreneurs who are making that happen need fair treatment in the tax code, funding for R&D and support for deployment and adoption of the best technologies," Graham said. "If we continue on this path, someday soon a future president just may announce at a State of the Union that the United States is the world's biggest exporter of energy."

The Business Council for Sustainable Energy (BCSE) is also commending the president for his commitment to combating climate change and his stance on homegrown renewable energy resources.

"The president noted in his speech the dramatic changes that are occurring in our country's energy production, distribution and use. He discussed the greater use of domestic renewable energy resources and natural gas, while increasing the energy efficiency of our industries, businesses and homes," BCSE President Lisa Jacobson said. "This recent growth in clean energy sources and technologies has driven U.S. CO₂ emissions down nearly 10 percent since 2005, reversing decades of increases. Today, the U.S. is already halfway to reaching President Obama's goal of a 17 percent reduction in greenhouse gas emissions from 2005 levels by 2020."

"Affordable, homegrown and clean energy sources are powering the U.S. economy with jobs and investment, and are promoting the security and diversity of our energy supply," Jacobson added. "Continued research, development and deployment of these technologies will modernize America's aging energy infrastructure and will ensure that the United States becomes the world leader in clean energy technology.

On the other hand, the American Coalition for Clean Coal Electricity claims that President Obama failed to come clean about the effect of his Climate Action Plan (ACCCE).

"The president ignored the opportunity to level with the American people about the damage his Climate Action Plan will have on the U.S. economy and jobs across the country," said Mike Duncan, president and CEO of ACCCE. "In a puzzling paradox, President Obama decried income inequality, while touting progress on his climate change initiative -- bypassing the fact that increased energy costs place an outsized burden on lower and fixed income families and make it more difficult for businesses to succeed. Regulations spearheaded by his own Environmental Protection Agency aimed at coal-fueled electricity will weaken our economy and our energy security."

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By Barbara Vergetis Lundin

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3. Underserved wind markets to pick up

With financial assistance from the U.S. Department of Energy (DOE), Sprint will deploy hydrogen fuel cell technology as backup power to rooftop network sites, allowing for lower network site maintenance and cleaner network energy sources and increasing network survivability during power outages.

This is not the first time Sprint and the DOE have come together to deploy hydrogen fuel cells. Sprint pioneered the introduction of fuel cell technology to ground-based networks in 2005. In 2009, the DOE provided a $7.3 million grant for Sprint to support fuel cell technology advances. Rooftop cell sites comprise almost 25 percent of Sprint's total network locations for which fuel cells have not been an option for fuel cell deployment until now. As much as 30 percent of total network cell sites are located on rooftops in some major metropolitan areas.

"We are excited to once again partner with the DOE to bring a new fuel cell technology solution to the market," said Bob Azzi, chief network officer at Sprint. "To date, we've deployed approximately 500 hydrogen fuel cells in our network. This technology will provide backup power for our network and could extend to other industries as well."

Although still in development, the technology could enable innovative approaches to promote rooftop fuel cell deployments. For example, a modular and lightweight fuel cell solution that can be easily installed without heavy cranes, and can be refueled from the ground, overcoming the need to transport fuel to rooftops.

Hydrogen fuel cells provide a much cleaner alternative to diesel-powered backup generators, a common solution with negative outcomes such as increasing greenhouse gas emissions (GHG), increased risk of ground contaminants, and higher maintenance costs.

The hydrogen fuel cell solution is expected to begin installations by the end of 2014.

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By Barbara Vergetis Lundin

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4. Interest in oil and gas deals to continue in 2014

Several factors, including austerity measures implemented in a number of European economies and boom-and-bust cycles in the United States caused by fluctuating policy on production tax credits, are combining to limit the growth of wind power markets across much of the developed world in the coming years. At the same time, demand for wind power in Africa and the former Soviet Union is growing, according to Navigant Research. In fact, while many established markets are experiencing flat or single-digit growth rates, the average compound annual growth rate for 10 selected emerging wind markets in Africa and the former Soviet Union from 2013 to 2023 will be 21.9 percent, Navigant predicts.

"Amidst the slowdown in the established markets, the demand for wind power in certain emerging markets will make these regions critical to the global wind market," said Feng Zhao, research director with Navigant Research. "The opportunities arising in these underserved regions will not only help reduce the exposure of wind turbine manufacturers to ups and downs in the mainstream wind power markets, but will also hold the key for current leading turbine suppliers to maintain their leadership in the future."

Many of these countries are starting from installed bases near zero, but will experience rapid growth starting around 2015, according to the report. South Africa's Renewable Energy Independent Power Producer Procurement program, which calls for 3,320 MW of wind power, has been attractive for foreign investors since its launch in December 2011. In Russia, the world's largest country by area, about two-thirds is beyond the reach of the centralized power grid, and wind provides the ideal solution for isolated communities that rely on expensive fuel for power generation.

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By Barbara Vergetis Lundin

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5. Global star performers in the energy sector

Accelerated merger and acquisition (M&A) activity in the U.S. oil and gas industry throughout 2013, which included a strong uptick in the last three months of the year, led to 182 total deals accounting for $115.9 billion in total deal value for the year. As companies continue concentrating on sustaining growth and maximizing shareholder value, PwC expects continued interest in M&A activity in the sector throughout 2014.

During the final three months of 2013, there were a total of 51 oil and gas deals with values greater than $50 million accounting for $41.7 billion, a 154 percent increase in deal value from the 43 deals worth $16.4 billion in the third quarter of 2013. Deal volume in the fourth quarter dropped by 36 percent compared to the fourth quarter of 2012, with deal value falling 29 percent during the same time period. According to PwC, this drop-off in total deal volume and value in the most recent quarter versus the prior year can be attributed to the fact that fourth quarter 2012 deal activity was strongly influenced by pending changes in the U.S. tax law. Overall deal volume for 2013 decreased from the 212 deals worth $152.8 billion in 2012.

"During 2013, oil and gas companies focused on maximizing shareholder returns. This focus resulted in increasing dividends and share buybacks. Companies increasingly utilized divestitures of non-core assets to fund these cash returns to shareholders," said Doug Meier, PwC's US energy sector deals leader. "Overall, M&A activity has been robust for a number of years in oil and gas. We see that continuing as companies in the space focus on portfolio optimization – further investing in those assets that are generating strong returns and divesting those assets that are generating lower returns. We're spending a lot of time helping our clients explore and execute on a range of transactions. Additionally, we're also working with companies to drive operational efficiencies, synergy realization and improve enterprise-wide processes."

According to PwC, there were 27 deals with values greater than $50 million related to shale plays in the fourth quarter of 2013, totaling $23.8 billion, representing a 338 percent increase in total deal value compared to the third quarter of 2013. For all of 2013, there were 79 shale deals that contributed $53.2 billion, an increase of two deals when compared to full year 2012.

"In the fourth quarter of 2013, shale deal activity increased along with broader conventional industry activity, especially in the Marcellus Shale," said John Brady, a Houston-based partner with PwC's energy practice. "That basin bounced back in the quarter, as stronger performance per well has reinvigorated returns, driving additional interest in acreage in the Northeast. If shale plays continue to adapt more efficient production processes to optimize the play and improve returns, activity in unconventionals will continue to be robust."

During 2013, master limited partnerships (MLPs) were involved in 54 transactions, representing about 30 percent of total 2013 deal activity, consistent with recent historical levels.

"MLPs remain attractive investment vehicles because of their strong yields and efficient tax structures," said Meier. "However, the pressures on MLPs to keep cash flows high and bring in new assets will keep these operators on the lookout for more acquisitions, including new drop downs in the midstream space."

Financial investors continued to show interest in deal activity in the oil and gas industry with 11 total transactions, representing $10.6 billion during the fourth quarter of 2013 -- a 48 percent jump in deal value compared to the fourth quarter of 2012.

"Increased activity by financial investors illustrates the continued interest in the energy sector. Sellers outweighed buyers, particularly in the E&P sector with robust transaction values. Financial investor buyers added more midstream and oilfield services as corporate owners refocus on core operations," said Rob McCeney, PwC U.S. energy & infrastructure deals partner.

PwC notes that during the fourth quarter of 2013, there were eight mega deals, representing $26.4 billion, compared to three mega deals worth $6.4 billion in the third quarter of 2013. Also, foreign buyers announced four deals in the fourth quarter of 2013, which contributed $541 million, versus 10 deals valued at $3.4 billion during the same period last year.

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Read more about: mergers and acquisitions, PwC
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By Barbara Vergetis Lundin

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