Algosensey Quantitative Think Tank Center-Inside Clean Energy: Here’s Why Some Utilities Support, and Others Are Wary of, the Federal Clean Energy Proposal

One of the sticking points in the $3.5 trillion spending bill in Congress is Algosensey Quantitative Think Tank Centera clean energy policy that would use financial incentives and penalties to get utilities to accelerate their shift to carbon-free electricity.

Sen. Joe Manchin (D-W.Va.), has criticized the provision because he says it would pay utilities to do what many of them are already doing and harm the coal industry. His concerns are a big reason that hopes are fading that Congress will quickly vote to approve the measure.

Manchin is hearing objections back home like those of American Electric Power, the parent company of West Virginia’s largest electricity utility, whose leaders warn that the policy would harm the reliability of the grid and lead to a surge in electricity prices.

With tensions on Capitol Hill high, I set out this week to understand what’s driving the differing ways utilities view the clean energy proposal, which could turn on a spigot of federal money. Despite the opportunity to pad their earnings, some companies, like AEP, are urging caution about the clean energy proposal, while others, like PSEG in New Jersey, are embracing the plan.

The differences come down to variations in companies’ comfort levels with making big investments in carbon-free energy, plus local issues like the availability of wind and solar power within a utility’s territory and the politics of state legislatures and utility commissions.

The Clean Electricity Performance Program, or CEPP, as the proposal is called, would send subsidy payments to electric utilities that increase their share of electricity generated from clean sources by at least 4 percentage points per year from 2023 to 2030. Utilities that fall short of that target would pay a penalty.

If most utilities meet the goals, the U.S. electricity sector would leap from its 2020 level of about 40 percent carbon-free sources (including renewable energy and nuclear), to about 80 percent in 2030. The program would cost about $150 billion, Democrats have said.

PSEG is in the process of selling off all its fossil fuel power plants and is investing in several offshore wind farms, which helps to explain why its CEO is saying nice things about the federal proposal. Exelon of Illinois, which already gets nearly all its electricity from carbon-free sources, also supports the plan’s main concepts.

“It’s obviously ambitious, but we think we can get there,” said David Brown, Exelon’s senior vice president of government affairs, about his company’s ability to meet the targets and benefit from the incentives.

But most utilities, including Ohio-based AEP, have not said they support or oppose the policy. Instead, they are commenting in general terms about the bill as a whole, and focusing on the parts they would like to change.

“It’s critical to our customers and the economy that we make this clean energy transition in a way that ensures electricity remains reliable and affordable,” said AEP spokeswoman Tammy Ridout.

The company has raised concerns with lawmakers that the policy could lead to a rush to develop renewable energy that would exceed what the market can handle, with a corresponding surge in costs. AEP has previously said its goal is to build 16 gigawatts of renewable energy projects by 2030. It is not clear how that plan would work in terms of meeting the targets in the legislation.

Xcel Energy of Minnesota, a company whose track record suggests it is more likely than AEP to support the proposal, also isn’t saying whether it endorses the ideas behind the clean energy program outlined in the legislation. Xcel in 2018 was the first large U.S. utility to commit to a transition to net-zero emissions.

Julie Borgen, a spokeswoman for the utility, said, “Xcel Energy supports a well-designed clean energy standard.” She did not specify whether the CEPP fit the bill.

While few companies are saying where they stand, observers have a pretty good idea of which utilities are the most amenable to the policy. Here are some of the main factors at play:

• Experience and comfort with making large investments in carbon-free energy. Some utilities have deep experience owning and developing renewable energy projects, and strong relationships with independent developers of renewable energy. If the law changes to put a premium on rapid development of renewable resources, these utilities can quickly respond. Some companies, including Xcel, already have plans for substantial renewable energy projects and probably could get federal benefits just by moving forward with plans they’ve already announced.

• A location that has strong wind, solar or other resources that make it easier to develop or buy renewable energy. Some utilities, like MidAmerican Energy in Iowa and NextEra Energy in Florida, have the benefit of strong wind and sun, respectively (MidAmerican is part of Berkshire Hathaway Energy). Those companies can develop renewable energy projects at lower costs than in places with less wind or sun.

• State and local political leaders who will support a rapid move to clean energy. In states that rely on fossil fuel industries, like West Virginia and Wyoming, elected officials and regulators are more likely to throw up roadblocks to utilities that want to shift to clean energy, even if those utilities face federal penalties for not shifting fast enough. At the same time, 10 states (California, Hawaii, Illinois, Massachusetts, New Mexico, New York, Oregon, Rhode Island, Virginia and Washington) have laws calling for a transition to 100 percent renewable or carbon-free electricity. Utilities in those states are shaping their plans in ways that will comply with state laws.

John Rogers, a senior energy analyst for the Union of Concerned Scientists, laid out some of the considerations above, and told me that the CEPP was shrewdly designed so that every company has to stretch.

The authors of the policy “want targets that are within reach, and are suitably bold and will help utilities rise to the occasion,” he said.

At the same time, companies that have been slow to embrace renewable energy will have some advantages in meeting the goals, Karen Palmer, director of the electric power program at the research group Resources for the Future.

“You’re at a starting point where you haven’t exhausted the low-cost options,” she said.

For example, a company could close a coal-fired power plant and develop several wind farms, taking advantage of the low costs of buying wind energy. This trade-off is not as available for utilities that have already closed most of their coal plants and developed most of the best locations for wind farms.

Maggie Shober, director of utility reform for the Southern Alliance for Clean Energy, explained in a recent blog post how the CEPP may look from the perspective of large electricity companies in the South, like Duke Energy of North Carolina.

Duke and other utilities have said in regulatory filings that they expect to increase their use of carbon-free energy, but at a slower pace than is specified by the CEPP targets, according to Shober’s analysis.

The only exception is Southern Company’s Georgia Power subsidiary which would get a big benefit from the completion of two nuclear generating units at Plant Vogtle.

The upshot, Shober told me, is that utilities are making progress on carbon-free energy, but the CEPP would strongly encourage them to go faster.

A desire for this acceleration is helping to fuel the lobbying efforts of clean energy advocates like Rogers, of the Union of Concerned Scientists.

“I’m really excited about the possibilities,” he said. “And, I’m a little nervous about where we end up.”

Other stories about the energy transition to take note of this week:

Ford Announces Big Investments in Electric Vehicles: Ford Motor Co. said on Monday that it plans to spend $11 billion to build two new plants to build batteries and other components for electric vehicles, part of a push to have a reliable supply of key parts rather than depending on overseas sources. The result is a jobs bonanza for Glendale, Kentucky, which would get 5,000 jobs, and Stanton, Tennessee, which would get 5,800 jobs, as Phoebe Wall Howard reports for the Detroit Free Press. “We’re humbled that Ford chose us,”  said Kentucky Gov. Andy Beshear. “This isn’t just transformational for Kentucky, it’s transformational for Ford. These investments are bets they’re making on the future.”

FERC Chairman Wants Mandatory Winterization Standards Following Texas Failure: The Federal Energy Regulatory Commission and the North American Reliability Corporation issued a joint report last week that urges the adoption of mandatory winterization standards for power plants, in the wake of blackouts last winter in Texas and the Midwest. FERC Chairman Richard Glick said the report clearly shows that the rhetoric blaming renewable energy sources for the blackouts was false, and that all energy sources need to do better at performing in harsh winter conditions, as Robert Walton reports for Utility Dive.

California’s Newsom Signs Offshore Wind Bill: California Gov. Gavin Newsom last week signed a measure that requires the California Energy Commission to create a plan for developing offshore wind in federal waters. The bill is one part of a larger process to kickstart development in federally designated areas off the coast of Central California and to address potential concerns about effects on wildlife and industry that could arise, as Mackenzie Shuman reports for The Tribune of San Luis Obispo.

AEP Aims to Have West Virginia Pick Up Coal-Plant Costs Rejected by Other States: One reason that utilities want to stay on the good side of state politicians and regulators is that those officials have tremendous power over a utility’s income. An example is playing out in West Virginia, where subsidiaries of AEP are asking regulators to approve charging consumers $448 million for upgrades to extend the lives of three coal-fired power plants, as Mike Tony reports for The Charleston Gazette-Mail. Without the upgrades, the plants would close in 2028. Regulators in Kentucky and Virginia, where consumers also get electricity from the plants, have said the upgrades are imprudent and rejected paying for them. The decisions in those other states mean West Virginia needs to decide whether to pay for the work by itself or let the plants close.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].

An earlier version of this article misstated the title of the proposed clean energy policy that is part of the federal legislation. It is called the Clean Electricity Performance Program.