Debates are being had around the globe on how to reduce carbon emissions most efficiently and economically. Whether though a carbon tax or carbon trading program, or through wholesale market pricing schemes, carbon mitigation strategies for reducing carbon dioxide emissions in the electricity sector are gaining traction. With the aggressive fiscal and monetary policies and stimulus programs in place across the globe, attempting to soften a global economic downturn and speed the economic recovery from the COVID‐19 pandemic, governments and businesses alike are voicing concerns about pending large budget deficits and their potential to slow and prolong economy recovery. Governments around the world will be forced to reduce spending in coming years or find ways to raise revenues. The tax code is a very efficient and effective way to steer investments toward innovative and transformative capital projects, including projects that support decarbonization.
When I began this series of columns in 2015, one of the first was a reflection on the problems of assessing and characterizing international energy.1 Local customs, terms, and methods of regulation are rarely comparable. There are few international energy markets and almost no international legal or political standards for practical energy regulation. What is more, the reasons why democratic governments regulate as they do often reflect legislative, policy, or regulatory reactions in response to strong public opinion stemming from long‐forgotten sources of public frustrations.
Existing technologies that produce blue hydrogen with carbon capture, use, and storage (CCUS) could be a bridge to widespread production of green H2, which is produced with renewable energy without carbon dioxide (CO2) emissions. By incenting and encouraging higher production of blue H2, which primarily uses natural gas, and green H2, the transportation sector could be decarbonized to combat the adverse effects of climate change. Such a program would require tax incentives for blue H2 production and help decarbonize natural gas by blending it with H2 for use in the heating and power sectors. Tax incentives on green H2 production would also encourage more companies to use and improve alkaline and proton exchange membrane electrolyzers. One of the advantages of such an approach is that residential and industrial consumers in various countries could be given a choice in selecting an electric vehicle (EV) with H2‐powered fuel cells or battery‐powered EVs.
New York's Climate Leadership and Community Protection Act (CLCPA) establishes a legally binding commitment to reduce greenhouse gas (GHG) emissions 80 percent by 2050. There is also an interim goal of installing 9 gigawatts (GW) of offshore wind capacity by 2035. To date, no offshore wind projects are operating in New York; however, several market enablers have been active in pushing compliance with this offshore wind target. Key enablers include the competitive auction of federal leases for project development, the presence and interest of experienced international developers, and the market trend of decreasing costs of offshore wind. From a policy perspective, enablers include phased and deliberate policy initiatives, known procurement and contracting procedures, and coordination amongst multiple state and local entities by the New York State Research Development Authority (NYSERDA). While progress has been made, there are also competing interests and potential policy changes that might require additional coordination to meet all of the objectives of the CLCPA.
Policy discussions continue across the country over which power‐generation sources and technologies will be the “silver bullet” needed to ensure electric system reliability and meet future energy demands while also reducing carbon emissions, and mitigating the increasing impacts of climate change. Many states are setting aggressive climate‐mitigation goals, which include the rapid deployment of renewable energy generation over the next 10 to 20 years to achieve these goals. As these discussions and policy initiatives unfold, one significant issue remains—the exiting transmission and distribution (T&D) in the United States needs significant investment to accommodate increased intermittent resources. This is increasingly important to ensure grid reliability resiliency as “100‐year‐storms” occur with greater frequency. And, as transmission projects are proposed, outreach to host communities by utilities, project developers, and policymakers will be paramount to successful project completion.
“Bankruptcy court” and “the Federal Energy Regulatory Commission” (FERC) are typically not words one hears together in the realm of the natural gas and electricity industry. After all, the energy sector for the most part offers boundless opportunities for profit and avoidance of bankruptcies. Nevertheless, the vast fluctuations and the vagaries of markets, technological change, and economic conditions at times force industry participants to seek refuge in the bankruptcy courts, which presents an immediate problem.
Digitalization is a concept some may write off as a mere buzzword when, in actuality, digital transformation has the potential to revolutionize the energy industry and, with it, change the world. Through new technologies that have significantly reduced burdens related to data collection, storage, and processing, society has an ever‐increasing quantity and quality of data available at its fingertips. These advancements, commonly referred to as digitalization, have allowed companies to increase performance, accuracy, and productivity in ways unimaginable even a decade ago. As expected, governments and private industry alike, including the energy, finance, and manufacturing sectors, to name a few, have already begun to explore manners in which to harness the potential benefits of the digital transformation. In the energy industry alone, between 2014 and 2016, investments in digital electricity infrastructure and software experienced an annual increase of approximately 20 percent, totaling $47 billion USD in 2016.
Energy is ubiquitous in everyday life, serving as the lifeblood of economic activity and personal and social well‐being. Without it, we can't manufacture, farm, work, care for the sick and elderly, bank, or shop. Nor can we remain socially and emotionally connected while sheltering in place or working remotely during the COVID‐19 pandemic sweeping across the globe. At no time in known history has the world's economy and civilization been so dependent on energy and our energy infrastructures for our economic, social, and physical well‐being.
As distributed energy resources (DERs) expand across electricity grids and the transportation and building sectors rapidly electrify, loads become less predictable. Utilities are looking for ways to continue providing reliable service to customers while managing the electric grid to meet changing supply and use patterns. This article explores the value that real‐time pricing of electricity can provide to customers, utilities, and generators by providing greater insight on energy use and load profiles.
The electricity grid in the United States is a complex web of generation, transmission, and distribution infrastructure, constantly balancing load to ensure each household has access to reliable electricity service. As the electricity grid grew into the “largest machine in the world”—“comprising 5,800 power plants, 3,200 utilities, and over 2.7 million miles of power lines”—reliability measures have been imposed, forcing microgrids together to form the nation's current three‐grid system with vast transmission networks and vital interconnections.
We are living in a time of high‐profile litigation regarding what had been, until the era of intense focus on climate change and greenhouse gas (GHG) emissions, one of the most noncontroversial elements of US interstate natural gas pipeline regulation: the certification of new interstate pipelines. From 1999 until 2017, the Federal Energy Regulatory Commission (FERC) approved and certificated 400 new interstate natural gas pipeline capacity projects—greatly expanding the nation's interstate pipeline capacity to accommodate new unconventional natural gas fields and a rising demand for the fuel generally (including for new gas‐fired generation that is driving coal from US electricity markets).
While many traditional economic indicators demonstrate the US economy continues to be strong, there is evidence the disparity of income and overall prosperity is growing. This growing economic inequality is a significant concern in the United States, where one in nine (38.1 million) Americans are living in poverty, ranking the United States as having the second‐highest poverty rate of the 35 Organisation for Economic Co‐operation and Development countries. Not only are many Americans struggling to live, but studies show these families have fewer assets and more debt than years before. A recent Congressional Budget Office report found that from 1989 to 2013, American families in the bottom percentile lost wealth over this period, while all other groups gained wealth, especially families holding the top 10 percent of wealth as shown in Figure 1.
Grid modernization is an exciting and sophisticated field. A Smart Grid anticipates two‐way flows of energy and information along power grids and the addition of many new innovative grid‐edge technologies—a veritable revolution for a system originally built to accommodate one‐way service that seems to have changed little since the watt‐hour meter was invented in 1894. This column is not about that technological revolution—many studies exist on that subject. Rather, this column is about who decides what technologies to buy to modernize the grid—who regulates the introduction of and payment for these new technologies.
In just 10 years, the number of electric vehicles (EVs) on the road has skyrocketed a hundredfold, from less than 10,000 in 2010 to 1.2 million in 2019 (Figure 1). This rapid increase has captured the attention of consumers and policymakers, bringing the ascent of transportation electrification into public discourse, and with it a focus on whether this trend presents benefits or problems. When assessing the opportunity for broad benefits across industry and society, there is a compelling case for transportation electrification. While many technology or societal trends benefit one group, the rise of EV adoption has revealed a strong case grounded in tangible benefits for a broad group of stakeholders. Research indicates there are significant benefits for utilities, customers, and society from investments in transportation electrification at the national, state, and local levels. As will be detailed later in this article, it is possible to calculate benefits for each of these groups, such as the lifetime cost savings to customers going from petroleum fuel to electric, the increased efficiency in utilization of the electric grid, the quantifiable economics of local job creation, and lower health costs for society. Figure 2 presents some of the key benefits that accrue to customers, utilities, and society that can help justify the investment and efforts around customer engagement for EVs.
In the current chaos of dealing with very low oil and natural gas prices, and amid concerns about supply and amounts to be produced and be available at decent market prices, reliable infrastructure to transport these supplies has emerged as a key element. Natural gas and oil pipelines span the nation and have many similarities in their purpose—to transport energy from where it is produced to where it is needed, balancing production markets with consuming and export markets. Both are regulated by the same agency, the Federal Energy Regulatory Commission (FERC). But the similarity ends there.
Within the global financial chaos caused by the impacts of COVID‐19, the oil and natural gas production industry has been hit unusually hard. At the onset of the pandemic, oil was already experiencing severe market distress, as global supply exceeded global demand. OPEC had tried to craft a cutback in production, which then turned into a price war between Russia and Saudi Arabia, driving a dramatic decline in global crude oil prices. Then, as the global pandemic emerged and the response of almost all major consuming nations was to bring travel, industry, and workplace commuting to a screeching full stop, the resulting collapse in demand allowed the oil industry to give an object lesson in supply‐demand economics. The bottom fell out of the crude oil price both internationally and domestically for the United States. Figure 1 charts the price of US crude oil at the West Texas Intermediate (WTI) index at Cushing, Oklahoma, from 2007, when the shale era began, to the current situation (the chart presents the data on a rolling‐monthly‐average basis, to smooth out the high level of daily volatility experienced over that entire 13‐year period).
Grid modernization is a critical component in transforming today's electric, gas, and water utilities to meet the growing expectations of regulators and customers. Grid modernization is the integration and use of connected devices from the customer premises to the rest of the transmission and distribution networks. The connected devices are the meters, monitoring equipment, and controllers that allow utility employees to remotely access data and operate the network. These devices are the backbone that enables electric utilities to improve reliability, maximize operational efficiencies, and accommodate the increasing proliferation of distributed renewable generation and changing loads throughout the system. Natural gas utilities are beginning to experience the same evolution electric utilities have been going through for the past two decades, but many are now well positioned to leverage lessons learned from their electric counterparts to execute some other, and perhaps less controversial, infrastructure‐modernization plans.
Natural gas is coming increasingly under attack by policymakers and elected officials who are embracing “electrification only” as a means of reaching state clean energy and climate‐mitigation goals. Achieving these goals may mean reducing the use of natural gas as a residential and industrial fuel. Earlier this year, the California Public Utilities Commission (CPUC) launched a new rulemaking to address the state's transition away from natural gas. The commission will address issues related to stranded assets and cost recovery, and unfair shifting of costs among different customer classes. Other state public utility commissions in New Jersey and New York may follow shortly, given their increasing opposition to interstate natural gas pipelines that would serve their residents and businesses.
The level of price elasticity for electricity service has always been a subject rife with controversy. Estimates of price elasticity in this industry have varied widely, and little if any consensus exists on what the true level of price elasticity is. This lack of consensus is evident in regulatory filings involving electricity rate increases, where price elasticity is generally ignored as a factor influencing future sales and revenues after the rate increases occur. Complicating the issue further is the question of exactly what price (if any) electricity customers are responding to: the total bill, the marginal (per kWh) rate, or some combination thereof. And of course, the answer to this question will be affected by the existence of any customer‐facing programs that make consumers more aware of and/or provide incentives to respond to time‐varying electricity prices.
Public and regulatory policies, coupled with government support through legislation and financial incentives including tax breaks, provide the impetus for transforming the energy industry in the United States. The transition from an industrial era closed‐loop one‐way power flow system to a flexible multipronged open system is going to require time and money. The flexible multipronged system is characterized as one in which communications and energy flows are two‐way, with multiple buyers and sellers competing in markets unconstrained by geography. Contracts for differences (in the form of energy credits, e.g., zero‐energy credits for nuclear power, renewable energy credits, carbon allowances, etc.) play a large role in defining the market.
