The inexorable shift of the U.S. power sector
David Littell served as a commissioner of the Maine Public Utilities Commission from 2010 to 2015, participating in the resolution of more than 2,000 cases involving energy efficiency, distributed generation, ratemaking, rate design, and consumer protection issues. He’s now a Principal at the Regulatory Assistance Project.
This blog originally appeared on the Regulatory Assistance Project’s website.
While the U.S. Supreme Court’s temporary stay on enforcement of the Clean Power Plan has grabbed headlines recently, it’s important that we be sure to read deeper, and consider the broader context, of which the CPP is only one part. We would be wise to remember that in recent years, and in the last several months in particular, there have been foundational, even tectonic, shifts in the U.S. power sector toward cleaner electric energy. This structural shift has been long predicted, and it’s now firmly underway.
A range of factors are at work, and I touch on a few here: there has been a steep drop in the cost of renewables generally, as learning curves improve and economies of scale are achieved. The grid is getting smarter and new storage technologies are moving down similar cost-reduction curves. Energy efficiency continues to grow and there looks to be significant room for even more of this low-cost, high benefit resource. And through distributed energy resources, electricity customers are effectively becoming energy resources themselves.
It’s also worth noting that states have for years encouraged this energy transformation, when federal action has been lacking, through strategies like state energy efficiency resource standards and renewable portfolio standards (RPSs). RPSs are producing cleaner energy mixes and bringing economic and job benefits to state economies. Twenty-nine states have implemented an RPS to considerable effect for clean energy, U.S. jobs, and economic growth.
A recent comprehensive analysis by Lawrence Berkeley National Lab found, among other things, that over the course of 2013 and 2014, RPSs produced roughly 5,600 megawatts per year of new renewable energy capacity, reduced wholesale electricity prices, and yielded up to $1.2 billion in savings to electricity consumers across the United States. RPSs also reduced emissions of sulfur dioxide (SO2), nitrogen oxides (NOx), and particulate matter 2.5 by 77,400, 43,900, and 4,800 metric tons respectively in 2013, and thereby produced health and environmental benefits equal to $5.2 billion. With health and environmental savings added in, the benefits exceed costs by more than 800 percent. That’s before counting the water savings, 200,000 U.S.-based jobs, and $20 billion in GDP growth.
RPSs have produced some, but by no means all, of the renewable growth in the U.S. That’s important because integrating more renewables into the grid continues to be feasible even at much higher levels. Numerous studies (here, here, and here, for example) have concluded that renewable penetrations beyond state RPS levels can be accommodated with current electric system flexibility. Others (here and here, for example) have found that much higher penetrations of renewable energy—meeting as much as 80 to 100 percent of demand—are possible.
The federal investment and production tax credits have animated the market, too. Analysis by the Rhodium Group finds that the tax credit extension shifts the lowest-cost energy resource options from natural gas to wind and solar. Rhodium’s analysis is illustrative of the economic advantages of renewable energy growth, but maximizing these benefits depends on expeditious action by utilities and states to capture the federal tax credits now available—the production tax credit (PTC) and investment tax credit (ITC) for wind is most valuable for projects started in 2016, and a separate ITC for solar is most valuable to projects in service in 2016. These tax credits will incrementally ratchet down over the next four years for wind, and six years for solar, to less than half their current level.
In assessing today’s power sector from 30,000 feet, it’s important to remember that renewable energy and energy efficiency are effective cost-reduction strategies, and produce a range of additional benefits, including clearly measurable employment, pollution, and public health benefits. Plus, renewable generation, in many cases, is easier to site than traditional facilities.
Renewable energy and energy efficiency are, by extension, risk-reduction strategies. Take cost, for example: most clean energy projects provide guaranteed energy and capacity prices over many years. While fossil fuel prices are subject to unpredictable commodity markets with histories of price spikes and supply disruptions caused by everything from a polar vortex to wars and terrorism, the cleanest energy options, renewable energy and energy efficiency, will be there when the U.S. ratepayer needs them.