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Three Ways Utilities Can Keep Pace With The Unprecedented Amounts Of Clean Power Coming Online

Posted to Energy Innovation: Policy and Technology LLC in the The Energy Collective Group
Mike O'Boyle's picture
Director of Electricity Policy Energy Innovation: Policy and Technology LLC

Mike is Energy Innovation’s Director of Electricity Policy. He directs the firm’s Power Sector Transformation program to uncover policy solutions for a clean, reliable, and affordable U.S....

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  • Jan 31, 2022
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Starting with President Biden’s call for 80 percent carbon-free electricity by 2030, new federal and state policies and economic realities are poised to drive unprecedented growth in clean power. But keeping up with this transformative economic opportunity requires utilities and their regulators to prepare for a much faster pace of change than they are today.

Investors are already responding to policy and economic realities: S&P projects 71 gigawatts (GW) of wind and solar will come online in 2022, along with 8 GW of batteries, a doubling of annual clean energy deployment since 2020.

The Bipartisan Infrastructure Deal (now signed into law), Build Back Better Act (passed in the House in November), and new federal regulations promise to devote significant federal support to help utilities rapidly transition to a clean, affordable, reliable electricity grid while creating more than $1 trillion in health and climate benefits.

Illinois Wind Farm. Credit: Tom Shockey.

Nearly a dozen credible modeling studies have converged on the feasibility and affordability of an 80% clean electricity system by 2030. Achieving this target was already a win for consumers and the planet, but federal incentives will reduce costs further and push markets faster.

Policymakers, cognizant of the coming wave of renewables and battery development, have a historic opportunity to rapidly deliver ubiquitous, cheap, clean energy for all by focusing on interconnecting renewables, improving utility regulatory models, and accelerating community transition and equity.

Interconnecting renewables at speed and scale

Interconnection costs and delays are among the highest barriers to accelerating U.S. renewable deployment. Lawrence Berkeley National Lab data shows approximately 670 GW of renewables and 200 GW of storage were waiting to interconnect to the bulk transmission system at the end of 2020. Interconnection wait times average more than three years for successful projects, and many die withering on the vine.

High interconnection upgrade costs unfairly distributed across beneficiaries also hamstring otherwise cost-effective solar and wind projects with eager buyers. Not all these power plants will be built even in the best of circumstances, but the interconnection queue’s size demonstrates the market can support a continued acceleration of deployment.

Renewable capacity in interconnection queues at the end of 2020. Source: Lawrence Berkeley National Laboratory.

Regional transmission operators and the Federal Energy Regulatory Commission (FERC) are key to unlocking this potential. FERC’s Advanced Notice of Proposed Rulemaking, Building for the Future Through Electric Regional Transmission Planning and Cost Allocation and Interconnection, seeks to tackle outdated interconnection and cost allocation rules and ensure cost-effective generation. In a best-case scenario, new rules would direct regional grid authorities to plan and authorize new transmission promptly and proactively, mimicking similar successes including MISO’s Multi-Value Projects planning process, and Texas’ Competitive Renewable Energy Zones.

Transmission policies in the bipartisan federal infrastructure package will also help. It strengthened FERC’s transmission siting authority while empowering the U.S. Department of Energy to finance and develop key interregional transmission lines to unlock cost-effective clean energy projects. And the new NARUC-FERC transmission task force will allow states to provide FERC with input on its priorities for interconnection and transmission reform.

This new federal support for transmission planning is necessary, but insufficient to leverage improving economics and federal incentives for consumers and keep pace with U.S. climate goals. States and utilities must actively identify the need for new transmission, collaborate on regional plans, and seek community input on siting. States can start developing transmission plans now that balance policy goals like community transition and consumer costs, while collaborating with neighbors to lay the groundwork for regional transmission build-out in the coming decade.

Aligning utility profits with a clean, affordable, reliable energy future

Regulated electric utilities have increased outstanding fossil capital expenditures (the utility “rate base” amount) over the last 15 years, to reach an all-time high of $160 billion, according to public data RMI collected. Monopoly utilities’ capital investment proclivities are well-documented; when utilities increase capital spending, their shareholders generally benefit. Utility ratemaking has incentivized investments in coal plant retrofits and new gas power plants, and rewards utilities that hold onto those assets, even when clean energy could save customers money. It’s also strengthened consistent resistance to customer-led clean energy resources like distributed solar, demand response, and energy efficiency.

Renewables are increasingly cost competitive with coal, with 80% of coal found as uneconomic (as denoted in red). Source: Energy Innovation.

But investing in clean energy is also a capital-intensive endeavor with a massive upside for shareholders. NextEra, now the world’s largest producer of wind and solar power, is also the largest U.S. energy company, surpassing Exxon Mobil in market capitalization. According to U.C. Berkeley, reaching 80 percent clean electricity could generate at least $1.5 trillion in new capital investments, spread across the U.S.—a massive earnings opportunity for monopolies and competitive developers. And Morgan Stanley finds coal-heavy regulated utilities can create huge growth by embracing clean energy.

States are likely to hear from utilities that they can get the best of both worlds: utilities will argue that more natural gas and distribution system spending will be necessary to facilitate the influx of variable clean energy resources. States will also continue seeing resistance to cost-effective customer-side solutions if utility business models are not addressed. Without proactive regulatory strategy, consumers could forego savings. Smart policy can align utility incentives around affordable, ubiquitous clean electricity by:

  • Pursuing performance-based rate reforms to counteract utility capital expenditure bias and providing incentives for utilities to pursue value-creating, customer-side investments like efficiency, demand response, beneficial electrification, non-wires alternatives, and customer solar and storage. Hawaii models how to implement this reform successfully.
  • Re-opening integrated resource planning (IRP) proceedings in line with new economic realities, especially if long-term federal tax credit extensions pass, linking these IRPs with competitive utility procurement to drive actual savings deployment. Re-examining the economics of existing fossil plants in this process, and planning for community and utility financial transition (see below). Colorado PUC’s all-source procurement and planning is a good model to emulate.

Community transition and equity

The U.S. is experiencing twin energy transition equity crises which must be addressed to ensure the rapid transition is politically durable, ushers in a more just society, and seizes the generational opportunity offered by clean energy. Communities of color bear a disproportionate air pollution health burden compared to whites, largely from explicitly racist housing policies that leave a legacy of underinvestment in urban areas, and gaps in generational wealth. Meanwhile fossil-dependent communities could sustain concentrated job loss and economic devaluation from a clean electricity transition, if not carefully managed.

The energy transition will not endure politically or remedy these harms if it is not just and equitable, and several states have adopted policies that demonstrate the potential for utilities and regulators to achieve a just and quick transition while remaking their electricity grids.

Illinois is tackling the clean energy transition and racial justice with the Climate and Equitable Jobs Act (CEJA). CEJA made Illinois the 10th state to set a 100 percent clean electricity standard, with a 2045 target. Labor groups estimate the needed renewables buildout will create 50,000 in-state construction jobs in the next 10 years, and CEJA takes the unprecedented step of requiring in-state developers to hit diversity goals to receive state contracts. The bill also allocates $80 million for 13 workforce hubs and contractor incubation hubs, to train a new, more diverse workforce.

CEJA mandates retirement of all fossil resources, shutting down the most polluting plants in historically marginalized communities first, while allocating resources for local reinvestment. The bill commits $40 million per year to address social and economic impacts in communities where mines or power plants will close.

Public Service Company of Colorado’s (PSCo) 2018 Colorado Energy Plan takes a similar tack to community transition while seeking to decarbonize its grid 60 percent below 2005 levels by 2026. For example, when PSCo recently decided to retire two coal plants in Pueblo, it directed solar replacement power bidders to focus their projects there. PSCo also facilitated a behind-the-meter solar installation for Evraz, a large steel fabrication electricity customer in Pueblo.

These successes didn’t happen by accident – both took years of community outreach to develop an inclusive clean grid vision that achieves energy justice. States and utilities should follow these models to avoid exacerbating energy transition trends that have left behind historically marginalized communities.

The recent wave of federal legislation, state legislation, renewable cost declines, and utility commitments mean change is coming to the grid, fast. Institutions, with public utility and market regulators at the center, must keep pace by proactively addressing the largest barriers to fast deployment at low cost, starting with new planning efforts. Renewables need places to interconnect and keep pace with market demand; monopoly utilities need the right incentives to leverage low-cost technology and accelerate the turnover from uneconomic fossil plants; and communities need proactive support to equitably gain from the energy transition. Anything less would be a wasted opportunity.

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