Wind and Solar Fly to New Highs in the United States

Full year 2016 data just released from EIA shows that combined wind and solar reached 7% of total US electricity generation. In a system that produced a total of 4096 TWh, combined wind and solar provided 283 TWh. Breaking that down a bit further, wind provided 226.5 TWh; utility scale solar (both thermal and PV) provided 36.75 TWh; and small scale, distributed solar provided 19.5 TWh. That last figure is the one to watch. In a system that’s been plodding along without growth for a decade, producing 4000 TWh year after year, small scale solar has become an important force at the margin.

–Gregor Macdonald

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Photo: Occidental College solar array, Los Angeles, by Gregor Macdonald

Slow Growth in China Still Driving the Shape of Global Emissions

Slow growth in China continues to drive global emissions growth towards a flatline, leaving the gap open for renewables to exploit. According to the China Electricity Council (CEC), electricity generation grew 5% in 2016 to 5920 TWh with the combined contribution of new capacity in hydro, wind, and solar eclipsing the contribution of new capacity in coal.

However, for China’s electricity generation to have grown by a full 5% last year to 5920 TWh, it will require a downward revision in 2015’s generation total from 5811 TWh (the latest according to BP Statistical Review) to 5640 TWh. Yes, China’s energy data has become, in recent years, notoriously volatile. But if we combine the existing data set from BP with the latest CEC data, we find that China’s electricity generation grew a more reasonable 1.9% last year—a figure more in line with overall, economic readings.

For China to have achieved 5% growth in power generation last year, the downward revision to 2015’s generation will be large enough to record a significant decline in growth, from the previous year (2014). The implication is pretty clear: volatility in the baseline at this juncture does not change the overall picture, that China’s economy—which runs mainly on electricity—is moving along at a conventional rate.

But there’s a final data point buried in the recent data release from CEC, that strengthens the slow(er) growth thesis in China. The utilization rate of China’s thermal power generation capacity (coal, natural gas, and oil) actually fell, to the lowest level since 1964. This confirms a broader, more important trend that we’ve known about China for some years now: it’s powergrid system is a sprawling, stuffed with coal plants it no longer needs, and has already reached overcapacity.

–Gregor Macdonald

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Coal Jobs and the Power of a False Premise

Employment in America’s coal industry collapsed not five years ago, but fifty years ago. Since that time, President Nixon’s establishment of the EPA, the steady market share gains of natural gas in the US power generation mix, and the shift to machine-based, open pit coal extraction in the West have helped to ensure that growth in the US coal job market has been nil. The long-term, historical picture is captured well in a US Department of Labor MHSA series that starts in the year 1900:

There have been fluctuations, however. China’s choice of coal singlehandedly resurrected the entire global coal industry from its chronic, moribund state–for about 15 years, between 1995 and 2010. That blip in time revived, very briefly, US coal mining employment by a scant 17,000 jobs from a low in 2003 of 70,000 to a high of 87,000 in 2011. This shorter time frame is best seen starting in 1985, from the US Department of Labor’s CES series:

Depending on which data series you use, 2016 coal mining employment was running at 81,000 jobs (MHSA) or 50,000 (BLS/CES). But it doesn’t really matter. On the longer timeline, US coal employment has literally been decimated, falling from a high of over 800,000 jobs in the 1920’s,** to today.

Now comes the Trump Administration promising a second resurrection of America’s coal industry; not by capturing natural demand, but by changing policy. Here, like so many claims from the new administration, the premise is false. Markets and technology, not policy, are what ails the US coal industry because the US coal industry like the US oil industry is a feature of a global market. And in today’s global market, solar, wind, and natural gas are trouncing coal for new, marginal additions in power generation in every important domain. Especially China.

Sadly, the Trump administration wants to sell their false premise to the small, remaining group of American workers connected to the coal industry. The humane, and rational policy would be to design the best ever job-retraining program for these workers, and to roll it out on their behalf. Such a program could be further supported by new infrastructure spending not only in the few states where coal extraction still takes place, but in those states where coal combustion, and coal fired power plants (many 40-50 years old), are retiring.

Instead, using coal miners as props, the administration has enacted a series of social signaling legislation, like the repeal of the Stream Protection Rule. This chimera has been covered well by Brad Plumer at Vox, and also by Jenna Johnson and Dave Weigel at The Washington Post. But the most basic point is not hard to understand: you can save maybe several hundred jobs, but, you cannot save 70,000 coal jobs through the adjustment of small scale regulation, as claimed by the coal industry, when only 50-80,000 jobs remain.

Where are all new the jobs today? In wind, solar, and natural gas. To illuminate the problem for coal further, see the relentless market share gains that natural gas has made, over the past 20 years, in US power generation. In a country that’s been generating roughly 4000 TWh per year of electricity, without much growth for a decade, natural gas has charged onto the scene and reached 1,400 TWh:

Coal remains a cheap and powerful energy source globally but, unfortunately for coal miners everywhere, extraction and combustion costs, construction timelines to erect new coal infrastructure, and the associated supply chain have made new coal increasingly uneconomic. Finally, path dependency—which at one time worked in coal’s favor—now works against it. Many coal plants in the US and the West came up for retirement just as natural gas, wind, and solar were getting cheap. Alas, coal has missed out on its market share opportunity for decades to come. Another reason to do the humane thing: offering robust job re-training to workers connected to America’s (long) dying coal industry.

–Gregor Macdonald

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**Correction: data points in the first chart between 1930 and 1960 were corrected per the linked data set, to fix a data transposition error. The resulting chart does not change the story, but does indeed remove the spike/crash in the pre-corrected version, and offers a smoother portrait of the decline in coal jobs between 1930 and 1960.

The Next Emissions Story

If you’ve been following the emissions story the past few years, you will know that slower economic activity and the rise of renewables have started to seriously blunt the growth of global carbon. In the OECD, for example, CO2 output has surely peaked, with virtually no risk whatsoever that developed nations will return to the carbon output highs of last decade. Globally, emissions growth started to stall out 2-3 years ago. Because, even in the Non-OECD, China has begun to thwart marginal growth of fossil fuel consumption through a revolutionary buildout of wind and solar power. (see: Are We Finally Seeing Good Climate News from the US and China?)

The next emissions story therefore will not be about the growth of CO2, but rather, the difficulty in engineering a new phase of carbon output decline. Like the cyclist behind a belching bus (photo above), an encouraging adoption phase globally of wind, solar, energy efficiency, walkable urban space—and yes, cycling—is now running up against legacy, fossil fuel systems. If you are a climate scientist, the risk is now shifting, therefore, from the next phase of carbon growth to a long standoff between marginal growth from clean sources and fossil fuel dependency.

A better conversation about these risks can benefit, therefore, from a delineation between adoption and dependency. All too often, fluctuations in energy usage in dependent systems are mis-read as growth (or adoption). Oil use in the United States is a perfect example. Let me explain.

The adoption phase of oil—the uninterrupted sequence of years in which the economy required ever higher volumes of oil to grow GDP—ended roughly 40 years ago in the United States. Oil consumption last year, of 35.89 quadrillion btu, was first reached 40 years ago when, in 1976, US oil consumption crossed above 35 quadrillion btu for the first time. In the last 40 years, the US population has grown from roughly 220 million to 330 million people. GDP (nominal) has grown roughly 10X, from 1,877 T to 18,567 T. Ergo, oil use per capita, and, per unit of economic growth, has been in steady decline for four decades.

But a new phase began in US oil consumption starting four decades ago: the dependency phase. Understanding this dependency phase is crucial to a broader framework-understanding of where we are today in global coal dependency, oil dependency, and natural gas dependency.

Consider, for example, the chronic discussion of peak car. Animated by data points on per capita auto ownership, miles driven, and gasoline consumption in the United States, the conversation appears to be teetering always to a question of whether the next new growth phase is coming in the American automobile complex. But growth in the US automobile complex is largely off the table. Dependency, and the failure of the US to invest more aggressively in public transport (like the rest of the world) is the real question, the real problem.

The qualities of the peak car discussion can be found also in the discussion about peak coal. Because wind and solar are doing so much work now at the margin, and because solar costs are falling so dramatically, the risk of a new increase in global coal consumption has crashed. Coal growth is over, full stop. And yet, many climate models still embed a risk of future coal growth, in part, because we are too close in time to coal’s resurrection (1995-2010) when coal and coal infrastructure was cheaper, and easier to adopt, than renewables. But that era is now behind us as both China, and now India, see that solar is better, cheaper—and most important of all—faster. (see: India Will Crush You with Solar, 13 February newsletter).

The probability is high, very high, that global emissions have now peaked. Indeed, if the world puts together a few more years of flat emissions, there will be a temptation to declare an initial, first-goal victory. And that’s fine. The next goal in global emissions—covering 100% of marginal energy consumption growth, while at the same time getting to work on existing fossil fuel dependency—will be harder, or perhaps more pointedly, slower to achieve.

–Gregor Macdonald

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The Large Scale Force of Small Scale Solar

Soon, you will learn that US solar growth doubled last year, as the country added a gargantuan 14.6 GW of new capacity. The utility scale sector saw the highest growth rate in 2016, and that has caused some small consternation among analysts who observe a concurrent slowdown in the rate of new rooftop solar, in the residential market. But there is little to worry about in the performance of non-utility scale solar for just a single year. Why? Because small scale scale solar is now a major force, cumulatively, in US renewable generation.

According to EIA, small scale solar (typically referred to as distributed solar) generated 11.23 TWh compared to total solar generation of 28.92 TWh in 2014, or 38%. In 2015, small scale solar generated 14.94 TWh compared to total solar generation of 39.03 TWh, in 2015—again, a 38% share. In 2016, according to EIA (whose data tends to lag), small scale solar is on pace to generate about 19.94 TWh in estimated total solar generation of 56.85 TWh, a 35% share. And given the more updated data now emerging on last year’s installation of capacity, these generation totals may be revised higher.

A larger point is worth making here, however. The US electricity system has been running along for a decade now, generating roughly 4000 TWh per year, without any growth or decline. This data point alone is often marshaled to make the case that economic growth itself is on the wane in the US; and it’s certainly the case growth overall is running at a new normal, around 1%, in the developed world. But it’s also the case that efficiency is driving a large part of this phenomenon. Energy capture—the kind enabled by wind and solar—is alot more efficient than energy combustion. Meanwhile, the US power generation fleet continues to turnover as new plants with the latest turbines (especially in natural gas) replace old coal plants. Finally, a quiet revolution continues to take place in US building construction, driving further efficiencies. So yes it’s now true: US economic growth has quite effectively decoupled from “growth” in energy consumption.

–Gregor Macdonald

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Photo: Duxbury Beach, Massachusetts

Oroville Dam and the Infrastructure Policy Swirl

Given the policy incoherence of the Trump administration the temptation is strong to assert nothing they attempt on behalf of US infrastructure is likely to work. While this is true in a broad sense, it’s important to create roughly two classes of infrastructure that current policy proposals are likely to either neglect, or affect.

The first is that class of infrastructure that generates little to no revenue, or, whose cost can never be recovered fully through rate payers. Into this box, you might place schools, public drinking water systems, and a number of large public transport mega-projects. These are the infrastructure typologies that pay out long-term social dividends and efficiencies to the economy. This is also the class most neglected precisely because policymakers, in their short-sightedness, find it hard to quantify the dispersed nature of the payoff—despite its potentially large accrual to human well being, and GDP.

The second is that class of infrastructure that more typically produces steadier cash flow: internet infrastructure, pipelines, toll roads and bridges, and power plants. It’s the class of infrastructure into which large, sovereign funds like Australia’s superannuation and globally listed, dividend-seeking mutual funds have historically devoted capital.

Now that Oroville Dam—and its power plant, the 0.819 GW Fred Hyatt hydroelectric station—have been in news this week, let’s ask the question: into which category would this piece of power infrastructure fall? Over at CityLab, they took a stab at this question and concluded needed repairs to Oroville’s spillway was the kind of project that Trump’s plans would neglect. But I don’t think that’s correct. Indeed, Trump’s preference for P3 (public-private partnerships–which are not necessarily a bad thing), would very likely target a power station like Oroville’s Hyatt. One could easily see an offer to Oroville in the form of a financing-stack, one that blends private capital with federal assurances, in exchange for a cut of the power station’s future cash flow.

Oroville’s power station is valuable, despite the fact that its generation is hugely variable: not only month to month but year to year, due to California’s rainfall seasonality, and its longer cycle of flood and drought. That said, the station tends to produce about 1,500,000 MWh per year.

But there’s more to Oroville’s Hyatt dam than simple hydro generation. The structure also contains pumped-storage capability, giving the station the ability to timely release flow at times of peak demand. And given the rate at which California is adding renewables (solar generation reached 10% of state demand in 2016), the state needs to build much more storage capacity in addition to utilizing stations like Oroville.

It should be said, nearly all public infrastructure offers relatively low rates of return in the form of cash flow. But the flaw in Trump’s infrastructure plan is that the neglected class will continue to be neglected, because in combination with an austerity-minded Congress, the infrastructure  most needed now requires federal investment that’s disproportional to its cash returns. (As President-elect, his team put together a quick 50 list, but it’s a more of a Hey, What About This? list than a coherent plan.)

Oroville represents a very different risk, therefore. It’s not, as CityLab suggests, likely to be overlooked but rather is the type of infrastructure likely targeted by the administration. I reported on the issue of P3 (public-private partnerships) late last month in Route Fifty, as it happens, and it should also be said that P3 approaches can form the basis of smart, infrastructure design. But who really thinks smart design would be a feature of the Trump administration in any policy rollout, especially infrastructure?

–Gregor Macdonald

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Global Wind and the Lone Star Leader

There’s fresh data out today from the Global Wind Energy Council (@GWECGlobalWind) showing that installed wind capacity worldwide is now just shy of 500 GW, at 487 GW. The report brings us up to the end of 2016, a year which saw 54 GW of new capacity constructed. China led the table with 42% of the gains, as that country once again suppresses its coal growth at margin, using an array of renewables from solar to hydro. And the US took second position, contributing 15% of the global total. Overall, China and the US are both undertaking aggressive changes in their powergrids, using the twin forces of wind and solar.

Of course, with wind, what we care most about is generation. In 2015 (latest year for generation data), global wind provided about 840 TWh, in a year that the world produced 24,010 TWh of electricity, or about 3.5%. That’s impressive. And given 2016 growth, wind generation last year might be estimated to have hit 950 TWh, as the world produced an estimated 24,500 TWh of electricity, or 3.8%.

But there are domains where wind growth is moving even faster, reaching higher levels of penetration. One of the legacy criticisms of renewable power is that it could never contribute more than a scant trace of overall load (demand). But in US states like Iowa, and Texas, wind power now regularly provides a high share of total electricity.

Just five years ago, for example, Texas wind generation regularly produced about 5% of total electricity sales, and topped out seasonally (during high wind months of Spring) at 10%. Last year, however, Texas wind regularly provided 10% of electricity, and often topped out above 15%. For 2016, Texas wind power will likely average out at 15% of total electricity sales. That’s not merely impressive; it’s a major contribution.

–Gregor Macdonald

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In the Year 2020

London based Carbon Tracker is forecasting that global demand for both coal and oil are set to peak just a few years from now, in the year 2020. The new report uses a model, in partnership with Grantham Institute, that combines policy and economic factors to arrive at the surprising convergence. Indeed it would be unusual, given the fast decarbonization taking place in global powergrids–and the slow pace of similar change in global transport–that demand for both fuels would crest in the same year. Does it matter?

Not really. There is little doubt that global coal demand growth has already peaked. Coal, a 19th century fuel that made a heroic comeback at the tail end of the 20th C due to China, now faces irreparable, structural decline as power plant fleets retire and solar costs rapidly fall. Coal’s last hope for growth was India. But now that massive utility scale solar can be built in India cheaply, and quickly, there is little prospect for further market share gains for coal. One way to see the termination of coal growth is its decline on a relative basis, in China’s energy mix. China is a sudden hero, frankly, in the buildout of wind and solar. Again, with coal in decline everywhere, the fuel needs some large domain–anywhere–to produce new gains.

The peak in coal demand therefore will undoubtedly come true, if it hasn’t already. The more uncertain question is the global demand growth for oil. While China and India absolutely cannot, and will not, replicate America’s 20thC adoption path of oil-based transport, they can at least follow a shorter version of that story. This risk is real, even as developed countries pivot more forcefully towards electric vehicles. So Carbon Tracker’s forecast for oil, meanwhile, is unlikely to come true by 2020. Why? The sensitivity to economic growth for oil demand in the Non-OECD remains too high.

The more useful insight, however, is that the rate of global demand growth for oil has slowed meaningfully. We used to live in a world where growth more regularly hit 2% per year. Now we live in a world where growth hits more regularly 1% per year. Carbon Tracker has been consistently out in front in explaining the imminent financial risk to fossil fuel investment as demand slows. And that’s still the case. In the same way the global utility industry failed to anticipate ferocious cost declines in wind and solar, the oil and gas industry is underestimating the coming electrification of global transport.

–Gregor Macdonald

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The Big Pivot: Interest Rates and Emissions as Global Population Growth Hits a Turning Point

It remains a curiosity that during a time of slow growth and exceedingly low interest rates—two persistent conditions which reliably perplex economists—that more attention is not drawn towards population trends, and fertility rates. Sanjeev Sanyal, who was at one time head global strategist at Deutsche Bank but who has since departed to embark on a writing career, was one of the few in the financial community giving credence to the imminent, and inexorable pull of our approaching demographic tipping point. In 2013, Sanyal released an appropriately titled research note, Predictions of a Rogue Demographer (PDF), wherein he declared UN Population Division forecasts for both mid-century (2050) and the end of the century (2100) to be wildly pessimistic. Indeed, since that note was released, the UN in their 2015 Population Revision dialed back some of their higher-end forecasts, and came to terms with the continued descent of global fertility rates.

The tipping point in question, which now approaches—no really, right now—is the product of the long-term decline in fertility rates and their cumulative effect on the annual population increase, between now and mid-century. We just passed a high point in this measure, in 2013, when the world added 84.21 million people. But this natural rate of increase is now due to decline steadily, falling to 74.65 million by 2025, 62.02 million by 2040, and 52.9 million by 2050. | see:  Annual Global Population Change in Millions 1970-2014 | UN Medium Variant Forecast 2015-2050

Annual Global Population Change in Millions 1970-2014 | UN Medium Variant Forecast 2015-2050

Now, the reason to think about yearly markers like 2025, and 2040, is that these targets appear in just about every forecast for deployment of renewable energy, fossil fuel and natural resource consumption, water availability, equity market performance and pension obligations, and global CO2 emissions. And although this is not happening yet, the above chart really should  be much more influential in all discussions of economic growth, and in particular interest rates. Indeed, in a more recent study published in early 2016 by Paul F. Robbins and Sarah H. Smith, Baby bust – Towards political demography, the authors—who clearly understand this tipping point in population growth just ahead of us—make the point that much of our contemporary economic and intellectual history was produced during a time of high growth rates, primarily during the latter part of the 18th C and of course into the following two centuries.

The implications are of course quite profound, and two areas of contention are worth following. The first is economic growth itself, and its associated interest rate regime. Perhaps it would be a better use of time within the financial community to prepare for a long, rarely interrupted phase of slow growth and low interest rates instead of decrying the system’s failure to return to higher rates of growth. Data across the entirety of the OECD suggests strongly, for example, that Europe and the United States are in the process of joining Japan in a secular era of this type. Energy use, fertility rates, GDP, all point in this direction.

Second, is the the very real possibility that future projections of global emissions from fossil fuel combustion are currently more consistent with a growth rate of fossil fuel use that is simply not going to unfold. While it would be foolish to declare a peak of global emissions based simply on the shape of the recent curve, the fact that global emissions have started to flatten out just as wind and solar costs plunge through key, competitive thresholds really does obligate one to consider how much more fossil fuel consumption growth lays ahead of us. Last year—and you can’t make a forecast based on one year, to be sure–coal’s decline was so severe that even after the increase in global oil and natural gas use, exactly half (50.9%) of all the new, marginal demand growth for energy came from sources outside the oil-coal-natural gas complex. | see: Contribution to Total Global Energy Consumption Growth in 2015 by Source

Contribution to Total Global Energy Consumption Growth in 2015 by Source

Normally, you would assign the words anomaly, or curiosity to such a single year’s performance but to do so would be to ignore trends in global energy use, demographics, and growth rates that have been developing for seven years now. China is literally conducting a war against air pollution, cancelling coal projects, building nuclear, and will deploy more solar this year than even existed globally in 2009; coal retirements in the US will roll onward to the end of this decade; but most important of all is that global solar costs and the learning rate of solar have killed, and will continue to kill, new fossil-fuel power generation projects. More broadly, with the exception of Africa and India, most of the world has now entered a long period where the task is not to build vast new infrastructure, but to replace, enhance, and upgrade existing infrastructure. Water, and transport infrastructure in the US is in dire need of remedy, for example.

Accordingly, it’s now clear that emissions have peaked in the OECD. What are the risks that economies from Japan to Europe to North America will enter a new fossil fuel adoption phase, reversing current trends and once again reach for coal and oil in particular? The risk is remote. OECD economies have long since completed their adoption phase of fossil fuels. What now remains is the dependency phase. You don’t even need to be told that OECD oil consumption, for example, has been in long-term stagnation when you see the following chart of OECD emissions. | see: OECD CO2 Emissions from Fossil Fuel Combustion in Million Tonnes 1975-2015

OECD CO2 Emissions from Fossil Fuel Combustion in Million Tonnes 1975-2015

19th and 20th century growth and development was so transformative that it now constitutes our only available inventory of intellectual history, and (understandably) dominates our expectations. When will interest rates return to normal? Why are central banks not letting interest rates rise? And, look at all these awful policy decisions preventing growth? These sentiments are artifacts; signatures of recency bias and the availability heuristic. In an excellent post last year by Neil Irwin at the New York Time’s Upshot blog, Why Very Low Interest Rates May Stick Around, it’s gently pointed out that high interest rates, not low interest rates, are history’s anomaly.

While upside risk to further fossil growth consumption growth remains in India and Africa, it’s important to understand that the OECD, and China, now act as a restraint on the global rate. For those who continue to predict a breakout of interest rates, global growth, and emissions to the upside, it is now necessary to explain such forecasts not as discrete phenomenon, but rather, to address the associated reversals in population growth trends, and new fossil fuel adoption revolutions required to produce such outcomes.

–Gregor Macdonald

Combined Wind and Solar Reach 7.2% of Total US Electricity in 1H 2016

The transition to renewables, wind and solar power in particular, has typically run ahead of expectations this decade and fresh data from the United States illustrates this phenomenon nicely. In the first half of this year, combined wind and solar provided 140.97 TWh of the 1959.20 TWh generated in the country. At the start of the year, the forecast was that combined wind and solar would contribute 6.5%. But in the first six months of the year, the combined share is already at 7.2%.

Share of US Electricity Generation in 1H 2016 by Source

When we look over the most recent projections for coal retirements—and conversely new natural gas, wind, and solar capacity additions—for the 2H of 2016, it seems clear that combined wind+solar generation will now be a minimum of 7.2% for the entire year, and, will likely advance further. Previously, considered it aggressive to project that combined wind and solar would reach 10% of US electricity generation by 2020. But that forecast is now looking easily achievable. At current rates, by the time we are into the year 2020, combined wind+solar is likely to provide 12-13% of total generation.

A final note on coal: it’s hard to believe but just five years ago, coal was holding on to more than a 40% share of US power generation. That share has now fallen to 28% in the 1H of 2016, and will decline further. However, because the great wave of recent coal retirements is slowing down, coal’s share of US electricity generation will retain a firm 20-25% as we head into the end of the decade. Coal growth in the United States has now fully terminated—and that may also be the case globally. The relentless cost declines and capacity factor increases for both wind and solar are now very much a part of coal’s current troubles, and the learning rate of renewables is set to bear down further on coal.

It used to be the case that the outlook for coal in the United States was not a good predictor for coal’s fortunes in the rest of the world. However, we may now have reached a turning point where the competitiveness of wind and solar is a global phenomenon, and, just as in the United States, spells the demise of further coal growth everywhere.

–Gregor Macdonald