Looking Ahead to 2021: U.S. Utilities Move to Decarbonize

Part of NRDC's Year-End Series Reviewing 2020 Climate & Clean Energy Developments

The past year added telling illustrations of how crucial energy efficiency and other approaches to smart energy use will be in phasing out U.S. carbon emissions, known as “decarbonization.” Ways to get more work out of less energy, and to introduce more flexibility in energy use, range from sophisticated new appliance and building technologies and controls to good old-fashioned insulation and leak sealing. America’s hometown utilities have become important clean energy partners by supporting programs, incentives and standards that accelerate energy efficiency progress.

Credit: iStock/Olivier Le Moal

But prospects for continued success hinge on ensuring that both nonprofit and investor-owned utilities can thrive if they deliver on accelerating the transition to a decarbonized economy in an equitable and affordable manner. NRDC’s Annual Energy Report, coauthored by Amanda Levin and Sophia Ptacek, shows that half the nation’s population is now served by utilities operating under commitments to full decarbonization.

To cite just a few examples of 2020 progress in energy efficiency and utility reform:

  • Energy efficiency and choosing building electrification over appliances and equipment that burn fossil fuels onsite are going to provide one-third of the emissions reductions needed to achieve New York’s goal of a 40 percent decrease by 2030 under its Climate Leadership and Community Protection Act, according to NRDC senior analyst Sam Wilt.
  • My NRDC colleague Eric Miller helped negotiate agreements that should deliver at least $1.6 billion in new investments in utility-administered energy efficiency programs for New Jersey over the next three years (with more than 60 percent of the total from the state’s largest utility, PSEG).
  • My colleagues Sheryl Carter, Luis Martinez and Ben Longstreth were in the (virtual) room in May when the Southern Company made its historic new commitment to decarbonize its electricity and natural gas operations by mid-century.
  • In March, NRDC and the Michigan Energy Efficiency For All coalition helped create new efficiency program portfolios for Consumers Energy and DTE. These are part of agreements that include the highest efficiency targets ever seen in the state (equivalent to 2 percent of the utilities’ annual electricity sales) and over $10 million of new funds for low-income and low-income multifamily households. NRDC also negotiated new, region-leading building electrification pilots that will target high-efficiency heat pump retrofits in affordable multi-family and single-family homes and in new construction.
  • NRDC and the Bloomberg Philanthropies American Cities Climate Challenge convinced St. Louis to become one of only four cities in the United States to enact building energy performance standards for significant parts of its existing building stock. 
  • In the Pacific Northwest, the Bonneville Power Administration noted in December that four decades of Northwest energy efficiency investment have created a “virtual river” of efficiency improvements that is now equivalent to the average annual output of the entire Federal Columbia River Power System, enough to meet the needs of five Seattle-sized cities. NRDC has been part of this effort from Day One (in keeping with its extensive roots in the region, where three of our six founders grew up, and at least a dozen of our staff now live).
  • The California Technical Forum, co-founded by my colleague Peter Miller, has a crucial independent expert role in evaluating and improving California’s energy efficiency programs; in December, its utility sponsors reaffirmed their support and provided new funding for CalTF. The Pacific Northwest has a similar institution, the Regional Technical Forum, which includes my colleague Mohit Chhabra and thrives under the leadership of the Northwest Power and Conservation Council’s Jennifer Light.

Two essential elements of decarbonization pose particular challenges to utilities’ ability to achieve full decarbonization goals:

  • massive economy-wide acceleration of energy efficiency and demand response (which rewards customers for shifting or altering energy consumption), especially for consumers overburdened by energy costs and traditionally under-represented in program delivery; and
  • a diverse portfolio of utility grid enhancements and zero-carbon resource additions requiring long-term investment and cost recovery.

To be sure, utilities have always needed reasonable assurances of cost recovery for new infrastructure, along with a solution to the conflict of interest that cost-effective demand reductions can create between utility owners (who need to meet revenue requirements) and customers (who expect rewards for using less energy). But the decarbonization imperative raises the stakes massively and exposes worsening inadequacies of the status quo, which still links utilities’ financial health directly to their electricity sales volumes in many states. Regulatory frameworks that work tolerably well under contemporary levels of energy-efficiency and demand flexibility will be increasingly untenable in the decades ahead.

In a decarbonizing economy, affordable, equitable, and reliable electricity service depends vitally on harnessing the full capacity of cost-effective energy efficiency and demand response (likely half or more of the total solution in aggregate). And yet traditional state utility regulation typically has treated utilities as commodity providers and given them strong incentives to boost kilowatt-hour sales in every sector. Decarbonization will require extensive electrification, but my colleague Max Baumhefner has shown how wrong it would be to assume that somehow this removes the need to move utilities off a business model linked to electricity sales, or that the value of end-use efficiency is somehow diminished as electrification increases.

NRDC’s work with utilities includes advocacy for utility business model reform that, while fully consistent with traditional regulatory principles, better accommodates cost-effective energy efficiency/demand flexibility (EE/DF) and other critical parts of the ambitious clean energy transition to which most utilities have now made commitments. I’ll be publishing an updated description of that business model in the March 2021 issue of the Electricity Journal. Please stand by.

About the Authors

Ralph Cavanagh

Energy Co-Director, Climate & Clean Energy Program

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