Trump or Clinton: What the power sector's future could look like under the next president
While the president has limited direct influence over the trajectory of the utility industry, there are important policy levers for either candidate’s aims
It’s not even September yet, and already most Americans are tired of the presidential election. Faced with two historically-unpopular candidates, nearly 60% of respondents to a Pew poll at the beginning of July said they were “worn out by so much coverage.”
But for energy nerds and insiders, there’s a silver lining — this campaign season has actually focused on energy and environmental issues from time to time.
In the past two presidential election cycles, that wasn’t really the case. Back in 2008, then-Sen. Barack Obama and Sen. John McCain both supported governmental action on climate change through a cap-and-trade system, and many energy-related discussions were about how best to structure such a program.
After the failure of a cap-and-trade plan in 2009, both President Obama and former Gov. Mitt Romney embraced “all-of-the-above” energy policies during the 2012 campaign, with the president memorably critiquing Romney’s efforts to shut down coal plants in Massachusetts during the pair’s second debate. This was before the first draft of the Clean Power Plan and the more aggressive environmental policies of Obama's second term.
That was one of the few times that energy policy took center stage during that campaign, which largely ended up as an economic referendum on Obama’s first term. But four years of low gas prices, federal carbon regulations and booming renewable energy growth have given power sector issues new importance in this election cycle.
Hillary Clinton has rolled out an ambitious clean energy agenda, pushed by calls for a carbon tax and fracking restrictions by supporters of her primary challenger Sen. Bernie Sanders (I-VT). Over at Vox, David Roberts did the yeoman’s work of piecing through the campaign’s many proposals, which aim to boost renewable energy and put the U.S. on a path to cut greenhouse gas emissions 80% or more from 2005 levels by midcentury, in accordance with the Paris Climate Accord.
Donald Trump’s energy proposals are ambitious as well, but in a different way entirely: In late May, the GOP nominee laid out his energy platform in a speech promising to boost oil, natural gas and coal production and put miners and drillers back to work in those sectors. Last month, Greentech Media’s Eric Wesoff envisioned the first 100 days of a Trump administration’s energy policy under the potential leadership of fracking magnate Harold Hamm.
Utility Dive sought interviews with energy advisors to both candidates, but neither campaign responded to repeated requests. Even so, applying some existing power sector modeling to their energy platforms can give us insight into what the power sector might look like under either administration. Here's what we found.
Forecasting policy impacts
At this stage, it’s a fool’s errand to attribute any exact numbers or forecasts to Clinton or Trump's energy plans. They are, after all, only proposals for the campaign trail at this point, and would undoubtedly undergo significant changes before becoming legislative or regulatory efforts.
That said, some recent power sector forecasts can give insiders a broad idea of the trajectory of the energy industry after the election. In particular, the modeling done back in February by research and consulting firm Rhodium Group is instructive.
A number of energy analysts turned down requests to speak about the election, often out of concern they could offend a client. But John Larsen, the Rhodium Group's director and head of U.S. power sector insights, said his group's forecasts could still broadly relate to the policy decisions of a future president.
At the time, Rhodium sought to model the outcomes of a number of policy choices, such as the extension of key renewable energy tax breaks at the end of 2015 or the potential rejection of the Clean Power Plan by the Supreme Court. The headline finding was that if the CPP remained in place, the renewable energy tax breaks would mean that wind and solar would essentially “run the table” for capacity additions to comply with the regulation.
Since then, the Supreme Court has put a judicial stay on Clean Power Plan compliance until court challenges against the regulation are concluded. Depending on that decision — likely next year, pending a hearing at the DC Circuit next month— the next president will likely inherit a status quo that looks like one of the two charts on the right.
Whether those green bars grow or shrink out to 2030, however, will depend on a number of policy decisions — not all of which are under the president’s purview. In general, Larsen pointed out, the president has control over federal regulations and government agencies, while national taxes and spending priorities are set by Congress, and states handle retail market power regulation within their borders.
“One set of things an incoming president can do is slow down or review [regulations] for a period of time,” Larsen said, “and there's also kind of the choice not to act on new initiatives that can happen in that space.”
While the next president could abandon the Clean Power Plan and other clean air regulations pushed by the Obama administration, they could not unilaterally cancel the renewable tax extenders or block state renewables mandates.
“There's also a gray area that I think is worth considering,” Larsen added, “which is the actions by the major commissions, and the major one in the power sector is FERC.”
“FERC is an independent commission and Order 1000 will still exist and move forward [regardless of the next president],” he said. “It would be very difficult for a president to interfere with that ability, absent appointing new commissioners who would choose to engage in that action, but that’s definitely a step removed from the other examples.”
The primacy of gas prices
Of all the energy decisions the next president makes, perhaps the most significant for the power sector will be those that affect one particular resource — natural gas.
“This is very much a gas-focused discussion,” Larsen said.
Due to their low cost and flexible generation attributes, natural gas generators typically set the prices in wholesale electricity markets. If natural gas prices go up, coal, renewables, demand side resources and nuclear power are all more competitive. But their deployment and dispatch could be curtailed if gas prices persist near record lows.
Rhodium’s modeling illustrates this fact. The firm used natural gas price projections from the EIA’s Annual Energy Outlook 2015 (AEO2015) report. But gas prices in 2015 were actually 30% lower than EIA projected at the start of the year and “a similar differential is expected for at least the next two years,” Larsen and his colleagues wrote in a February blog post.
“When we include lower natural gas prices in our tax extenders scenario, gas gives renewable power a run for its money — resulting in an increase in wind and solar generation of only 50 TWh above current levels by 2022,” they wrote. “Cumulative capacity additions are half what’s projected using AEO2015 gas price assumptions.”
An uptick in gas deployment now could have lasting consequences for the climate. While natural gas plants emit only about half the carbon of conventional coal generation, they are typically built for 40 years of service, sparking worries among some researchers that widespread deployment now could make U.S. efforts to meet international climate goals unworkable without early retirements and stranded assets.
The natural gas point particularly applies to Donald Trump, who champions American energy independence in the form of expanded domestic fossil fuel production. The position has earned Trump the support of many industry magnates, but beyond rolling back environmental and labor regulations, details on how he would deliver this end result are scant.
In fact, both candidates would have limited direct control over commodity prices, Larsen said, but there are some policy levers for both to grab onto.
“Often the statements of the Trump campaign revolve around an oil and gas story,” Larsen said, “and the oil story is really different because we live in a global oil market. You can drill all you want here and the oil price is not going to be influenced all that much because it’s a global market.”
The gas price is more malleable because of limited U.S. export capacity, he said. If more drilling happens here, gas prices could dip even further.
“But,” Larsen said, “you can’t make people drill. All you can do is open up more places for them to drill, and we're actually already seeing this.”
“On the Marcellus, drilling on private land has almost slowed to a crawl because prices in that region of the country are below $2/MMBTU still and nobody is making money,” he added. “Certainly, a president can open up and even streamline the leasing process for gas productions on public lands, but you would still need some sort of market demand embodied by a reasonably profitable gas price for that drilling activity to really get going.”
On the demand side, a president could also affect gas prices through speeding up the expansion of export capacity for liquefied natural gas, which could open new overseas markets for U.S. producers. That could prove more significant for gas prices overall.
“The LNG exports as far as scale are quite large,” Larsen said. “The current amount of capacity that's been cleared to get built represents at least 10% of total U.S. gas production. That can put upward pressure on gas prices if all that capacity gets built and utilized.”
A president can influence LNG export policy through FERC and the Department of Energy, both of which have supported expanding export capacity throughout the Obama administration. In fact, many greens remain suspicious of Clinton for her shifting positions on fracking and past efforts to expand fossil fuel extraction overseas.
But while export capacity has the potential to impact gas prices, control over it in the short term would be limited for either candidate.
“Those are still multimillion dollar projects that take a decade to build,” Larsen said, “Even then, you need to have global demand for that gas, which there has been plenty of so far, but LNG exporters compete on a global market, and Australia and other competitors have far more in the queue than the U.S. does.”
Renewables and R&D
Beyond gas prices, a president could also affect U.S. energy and climate policies by accelerating renewable energy deployment.
In the short and medium term, the main levers for a president include directing Clean Power Plan compliance — assuming it is upheld by the courts — and facilitating the expansion of transmission, which could lower delivered power costs for renewables.
“The DOE … is tied to some of those [transmission] projects using eminent domain authority for siting,” Larsen explained. “A president could choose to withdraw those projects which would have an impact on deployment, or a president could choose to double down on that authority.”
FERC appointments could also affect transmission siting. While the three Democrats currently sitting on the commission are generally supportive of federal attempts to expand the bulk power grid, others could seek to roll that back or even expand FERC’s powers further.
“The long story short is without these additional new lines for wind in particular, but also solar out west, you’re going to take the cheapest technology you can find and plug it into the existing grid,” Larsen said. “That means you’re probably dealing with pretty good renewable resources, but not the greatest you can get because adding a couple hundred miles of line to get to the really good wind is not a cost you want to bear as a developer.”
Beyond transmission, a president could also boost clean energy research and development and work with Congress pass more comprehensive subsidies for clean energy technologies.
Here, too, Rhodium’s modeling gives us an idea of the potential outcomes. Like gas prices, the renewable energy prices in the AEO2015 report were higher than actual market observations.
To adjust for declining technology costs, the analysts applied the National Renewable Energy Laboratory’s Annual Technology Baseline (ATB), resulting in a 43% decrease in solar PV capital costs and a 24% decrease in onshore wind capital costs by 2020 compared to AEO2015.
The result of these lower prices is higher renewable energy deployment under each examined market scenario, a similar outcome to what we could expect if federal energy policies brought down the cost of renewables further.
Outside of direct price levers, a president could also use the Clean Power Plan to influence clean energy deployment.
“The Hillary campaign has proposed these challenge grants to states to exceed the CPP goals and I think there would be a lot of details certainly to be fleshed out, and it would require congressional appropriations,” Larsen said. “But, what kinds of things states would need to do to get the money could certainly influence what [compliance plans] look like.”
Those assumptions do not apply to Trump, who has pledged to rescind the CPP and has trumpeted concerns about renewable energy in the past. In his major energy policy speech of the campaign so far, Trump highlighted solar energy as being "very, very expensive," while saying wind energy is "killing all the eagles" and that it "doesn't work" without subsidies.
Nuclear and the state relationships
In addition to natural gas prices, renewables policy and environmental regulations, the next president could also have an impact on nuclear plants, which provide almost 20% of U.S. electricity, but in many cases are uneconomic due to low natural gas prices and escalating operating costs.
A future president could affect the latter by altering some operational and safety regulations around nuclear plants through appointments to the Nuclear Regulatory Commission.
“NRC has since Fukushima added several safety and operational requirements to existing nuclear plants on the grounds of safe operations. A president could over time change the composition of the NRC to potentially change that pathway in one direction or another,” Larsen said. “I'm not suggesting those NRC rules are the key factor in the plight of the existing nuclear fleet at the moment, but I think that could be a little bit helpful or influence the cost structure of those plants in some way.”
Less directly, a president’s appointees to FERC could have an influence on nuclear’s competitiveness in organized markets, and not just through gas infrastructure and transmission build-outs. FERC can also encourage RTOs to alter their capacity market or price formation structures so that certain resources — like low-carbon nuclear — can better compete with fossil fuels. RTOs to alter their capacity market or price formation structures so that certain resources — like low-carbon nuclear — can better compete with fossil fuels.
“The price formation issue is very much an open docket that FERC is focusing on right now,” Larsen said. “The small amount we've looked at this suggests that if more RTOs were to follow PJM or New England's lead on capacity markets and all the RTOs improved their price formation to actually get closer to what the appropriate wholesale clearing prices should be, both those things could help the nuclear fleet.”RTOs were to follow PJM or New England's lead on capacity markets and all the RTOs improved their price formation to actually get closer to what the appropriate wholesale clearing prices should be, both those things could help the nuclear fleet.”
Beyond the president’s impacts on particular generation resources, Larsen said a final factor to watch will be how the future administration deals with state power issues.
Back in the 2000s, when California and New England states were passing the first explicit carbon regulatory policies, there was “no help from the Bush EPA, whereas some state activities like the NOx programs in the 1990s did have material support from EPA,” Larsen said.
Under a Trump administration, environmentalists might have to go back to suing the federal government to implement clean air regulations, as they did in 2008 when they won a Supreme Court case that said the EPA must regulate carbon under the Clean Air Act.
“If states wanted to move forward with some sort of broader action on CO2 actions absent a Clean Power Plan if there was a President Trump, would a Trump administration do that? Would states be suing a Trump administration to take action at the federal level and how would that affect relationships?” Larsen asked. “I don't have answers to that but I think it's a narrative that no one is really exploring."
This post has been updated to clarify a quote from John Larsen.
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