A Year-End Update on Electricity Policy From the Field
A review of the most important developments in rate design, distributed energy deployments, and utility business models.
The electricity sector’s competitive dynamic completely flipped in 2017.
It is now cheaper to build new wind and solar than new coal or often natural gas. In growing swaths of the country, it’s often cheaper to build new wind (and sometimes solar) than continuing to run existing coal plants. The implications are profound.
Utilities from Missouri, to Wisconsin, Minnesota and others have proposed early shutdowns of coal facilities, pointing to real customer affordability benefits from switching to cleaner power sources. Once-profitable merchant coal plants in Texas and Massachusetts retired or announced retirement, unable to compete with cheap natural gas and renewables.
Promising work on transition support for coal communities is gaining momentum. And, despite federal-level attempts to roll back policies that protect public health from energy-related pollution, only 12 states are at risk of missing their Clean Power Plan targets. The electricity market has shifted, and the policies and institutions that govern it need to do more work to catch up.
When we started America’s Power Plan five years ago, we hypothesized that the current institutional and market structures in the electricity sector were not set up to support an affordable, reliable, majority-clean energy system that adequately supported utility customers through the profound grid transformation underway.
We were, of course, not the only ones. We teamed with around 200 of America’s electricity policy experts to think through a comprehensive plan for the next phase of this system evolution. Our top recommendations included refocusing the utility business on performance rather than capital spending, promoting wholesale markets that expose the value of flexibility, supporting proactive transmission policy, and setting smart rate design that charges customers a fair price for grid services they consume while paying them a fair price for those they provide.
Many of these changes are underway in leader states and regions, and we are hopeful progress will continue. For specific insights, we asked experts in the field, many of whom have been involved in America’s Power Plan from the beginning, to comment on changes they are witnessing.
We focused on five topics: the changes in relative costs of electricity technologies, new utility models, wholesale power markets, transmission policy, and customer rate design. Here’s what we heard from some of our nation’s brightest minds.
What was the most surprising change in relative costs of electricity sources in 2017?
“For the U.S., I view 2017 as the year in which conventional wisdom has come around to the idea that switching to clean energy could save utility customers money. Specifically, we have seen clean energy costs fall to the point that the total cost of electricity from new clean energy (with federal subsidies) in much of the country could actually be lower than the cost of burning additional fuel in operating coal plants.”
— Uday Varadarajan, principal, Climate Policy Initiative
What anticipated price dynamics are you hopeful about in 2018?
“We are adding lots of clean power to a world with flat or declining demand, and the new power has zero marginal cost, so low wholesale prices dominate. Many of the ancillary services will also be cheap for some time to come, simply because of surplus supply. These trends should last a few years, to the benefit of customers and the environment.”
— Hal Harvey, CEO, Energy Innovation
What was the most exciting development in terms of utility business models in 2017?
“2017 gave us signs battery storage will become economically compelling for utilities and their customers. We also saw hints of the value of grid-edge data analytics, and a new debate on defining grid resilience. Channeled through the concept of ‘grid modernization,’ these developments may offer utilities a significant investment strategy for environmental and financial sustainability, while also driving program innovation.”
“If utilities can leverage these transformational elements with an emerging responsiveness to customers — particularly commercial and industrial customers — 2018 may be the year power sector uncertainty turns to clarity and confidence. In 2017, we also saw the start of a new interest in the electrification of transportation, which can offer both a new grid management resource and a significant revenue growth opportunity for the power sector. If that interest turns into investment and deployment of smart charging infrastructure, that confidence and clarity will become flat-out excitement and enthusiasm.”
— Tanuj Deora, chief content officer, Smart Electric Power Alliance
What are you most hopeful for in terms of new utility models in 2018?
“Looking to 2018, I’m hopeful for the continued proliferation of innovative financial mechanisms that can create real win-wins for everyone, including the utility’s shareholders. Some I have my eyes on: capital recycling mechanisms that enable utilities to retire coal and invest in renewables and piloted incentive approaches in New York and California that reward the utility for pursuing DER alternatives to conventional infrastructure.”