Utilities Important Partners to Achieve Clean Energy Future
Part of NRDC’s Year-End Series Reviewing 2017 Energy Developments
As we look back at a year marked with doses of exasperation and bewilderment, one bright spot is continued progress in America’s clean energy transition, and the jobs and economic development that go with it. Substantial acceleration is still needed, but despite President Trump’s openly declared war on clean energy, our forward progress continues. Much of the credit goes to America’s energy utilities, which have not veered from the clean energy path.
Utilities play a critical role in meeting our environmental and economic goals, and remain the most important—although not the only—investors (with capital budgets exceeding $100 billion annually), long-term planners, and resource integrators for our electricity and natural gas grids. Most have recognized that buying clean energy to serve their customers today costs less than dirty energy and that their customers want it—and their budgets reflect as much. Here is a sampling of developments over the last year.
Increasing Energy Efficiency
Energy efficiency—all the ways we can get more work from the same amount or even less energy—has for decades been the cheapest and largest contributor to meeting our growing economy’s energy needs. Cutting energy waste also helps avoid building new power plants and the pollution they generate. The most important single source of investment in smarter energy use is our electric and natural gas utilities. Electricity savings from the latest year of U.S. utility efficiency investment exceed the annual production of eight giant coal-fired power plants, and America’s electric and natural gas utilities are now investing more than $7.5 billion annually in programs to help customers use energy more efficiently.
Savings from energy efficiency programs have grown 45 percent over the past 5 years, according to a report from the Institute for Electric Innovation. Utilities across the country committed to increasing their energy efficiency investments even more this year, including DTE and Consumers Energy in Michigan; Commonwealth Edison, which will reduce energy use by 21.5 percent by 2030 and allocate sizable energy efficiency budgets to programs that serve low-income Illinois residents, and the utilities of the four-state Pacific Northwest region, whose efforts over the past three decades have saved the equivalent of the energy use of five Seattle-sized cities while cutting the region’s electricity bills by $4 billion per year.
Investing in Renewable Energy
Renewable energy prices have fallen dramatically, and utilities are taking this into account when making long-term investments in future generation facilities. For example:
- In the Southwest, Rocky Mountain Power recently requested approval from Wyoming, Idaho, and Utah regulators for a planned $3.5 billion investment in wind energy. Arizona-based Tucson Electric Power recently signed a Power Purchase Agreement (PPA) for a combined solar-plus-storage system for an incredibly low price of less than $45 per megawatt-hour (MWh). And Nevada-based NV Energy reached an agreement with Apple earlier this year to build an additional 200 MW of solar energy capacity? in Nevada by early 2019.
- American Electric Power (AEP) just announced that it will invest $4.5 billion in a new, 2,000-MW wind project that will provide customers of the Southwestern Electric Power Co. and the Public Service Co. of Oklahoma with renewable energy. It will be the largest single-site wind project in the country, expected to save customers more than $7 billion over 25 years.
- In the Midwest, MidAmerican Energy announced that, largely due to the low cost of wind investment, the utility is aiming to reach 100 percent renewable energy while keeping its customers’ rates frozen until at least 2029. And Xcel Energy announced plans for major new investments in wind and solar.
- Even traditionally renewable-laggard utilities like Georgia-based Southern Company and Florida-based FP&L are investing in solar generation.
Retiring Coal Plants
Despite the Trump Administration’s efforts to artificially boost coal production, many Western utilities have announced plans to retire coal-fired power plants in the coming years. Why? Because they are dirty, inflexible (which means they hinder efficient operation of modern electric grids), and can no longer compete in the market. Just a few of the recent announcements:
- Public Service Co. of New Mexico announced it will retire the 1,800-MW San Juan coal-fired generating station―one of the largest power plants in the western United States―between now and 2022 (which will save the utility $70 million to $450 million over 20 years). It also plans to vacate its stake in New Mexico’s Four Corners power plant, and will exit coal-fired generation entirely by 2031 at the latest.
- The Salt River Project, Arizona Public Service Co., Tucson Electric Power Co., and NV Energy voted to close the 2,250-MW coal-fired Navajo Generating Station in Arizona, which is no longer financially viable due to competition from cheaper energy sources and is scheduled to retire at the end of 2019.
- Oregon’s last coal plant is closing in the coming years; two of the four plants at Colstrip, Montana’s largest coal complex, are slated to close no later than 2022; Washington will shutter the last of its only two remaining coal plants (Centralia) by 2025.
Instead of wasting money on short-term subsidies to coal plant owners, stakeholders (including the federal government) should work with utilities and other community leaders to develop and implement sustainable transition plans to empower the local economy after these plants retire. While not involving a coal-fired plant, a good model is the Diablo Canyon nuclear power plant agreement reached between the owner PG&E, three national environmental groups, a prominent community group (the Alliance for Nuclear Responsibility), and the plant’s principal unions to retire California’s last nuclear plant, replace it entirely with zero-emission resources, and ensure fair treatment for the plant’s workers and the rural community in which it is sited.
How to Strengthen the Utility Partnership
If we want to help utilities become even better partners in our transition to a clean energy future, we need to change the way they are regulated to give them more incentives for action. We have made significant progress with one of the most fundamental reforms, called “revenue decoupling,” which breaks the link between utilities’ financial health and energy sales, changing their principal focus from selling electricity and natural gas to focusing instead on meeting customers' service needs, managing costs, and improving environmental performance. Currently, regulators of 92 electric and gas utilities, operating in more than half the states, have adopted revenue decoupling, which compensates them for fixed costs no matter how much energy they do or don’t sell. The latest is Puget Sound Energy in Washington. As the summary map indicates, however, many states and utilities have yet to break a destructive addiction to higher energy sales volumes.
We will continue to work on that in 2018.