Jon Wellinghoff: Utilities are not driving clean energy growth
How policy and regulation are driving renewables and efficiency deployments
It’s always been hard to tell which utilities are leading or lagging on clean energy — until now.
Sustainability advocacy non-profit Ceres and cleantech market research firm Clean Edge have come out with a new report that pinpoints the best (and worst) utilities for renewables and energy efficiency. But what makes a utility become a leader on clean energy?
“It’s been nothing that the utilities have done per se,” Jon Wellinghoff, the most recent former chairman of the Federal Energy Regulatory Commission and a partner at Stoel Rives, told Utility Dive in an interview. “What’s really driving the leaders is … both legislative and regulatory policy.”
Policy and regulation ‘have moved the utilities’
Ceres’ report may rank utilities on their clean energy leadership, but “it really has been the state regulatory policies behind them that have moved them into these positions,” Wellinghoff told Utility Dive.
In areas where the utilities are near the bottom of Ceres’ clean energy rankings, it is down to a “lack of policy,” Wellinghoff said. “Those places that don’t have those regulatory policies that provide for utilities expanding those resources, then you don’t see it happen.”
NV Energy may have ranked first in renewable energy sales in the U.S. in 2012, but that’s because “choices were made [in Nevada] a number of years ago to put in very aggressive renewable portfolio requirements,” Wellinghoff said.
Similarly, “there’s no utility that has an inherent incentive to improve the efficiency of its customer,” he added, “because, for the most part, that reduces revenues to the utility by reducing sales.”
The adoption of regulatory mechanisms such as decoupling to minimize the disincentive for utilities to pursue greater end-use efficiency is something regulators have tried, Wellinghoff said, but “it’s been primarily regulatory policies … and state legislative initiatives” in progressive states, such as California and Nevada, “that have moved the utilities to do these things.”
While the U.S. did not adopt a feed-in tariff as Germany did, states went for renewable portfolio standards, “which I think was a good choice,” Wellinghoff said.
The intent of state renewable portfolio standards was “to create a market for renewables” and they were “very effective” in enabling “renewables to flourish,” Wellinghoff said. These standards “have been tremendously successful.”
But renewable markets in the U.S. were not only driven by renewable portfolio standards.
They were driven in part by the decline in solar and wind prices, Wellinghoff said. “The Germans putting in over 300 billion Euros over 10 years into feed-in tariffs that supported and subsidized wind and solar” helped drive down the price of these technologies and thus make investment more economically attractive to utilities.
Stranded assets ‘are risks … shareholders will have to bear’
When it comes to the deployment of renewables, many utilities have concerns. Chief amongst these concerns are the impact that growing levels of intermittent renewables will have on grid reliability and the possibility of stranded assets.
“I don’t think there will be negative impacts on grid reliability,” Wellinghoff told Utility Dive. “Ultimately, the system operators … are flexible enough and smart enough to manage the increased levels of variable resources onto the grid.”
Wellinghoff pointed to Australia and Germany to show that high levels of renewables need not impact grid reliability. “In Australia, they have over 10% distributed solar integrated into their grid — one of the highest levels in the world — and yet they’re managing their system … without any significant issues,” he said. “In Germany, they have, at times, over 50% of their total load … [is met] with solar and wind.”
In fact, Germany actually “has a much, much higher level of reliability than we do in in the U.S.” And that’s with “much, much higher levels of renewables,” he said. “So that’s not an issue.”
So what’s really having an impact on grid reliability? “Our reliability issues in the U.S. have little if anything to do with solar or wind,” he said. “They have to do with aging infrastructure that needs to be replaced and grid modernization that needs to take place.”
But Wellinghoff did acknowledge that stranded assets are a valid concern. “They’re seeing that in Germany and they’re seeing that in other places where fast deployment and ramping of these technologies at a distributed level is displacing the central station generation,” he said. “But that’s the risk that these investor-owned utilities take when they make those investments. Those are risks their shareholders will have to bear.”
Some utility executives 'get it'
A recent U.S. Department of Energy study found that “renewables could feasibly provide 80% of the nation’s energy by 2050,” Wellinghoff wrote in the foreward to the Ceres report. “The main obstacle is not the price tag (which is comparable to a business-as-usual scenario) or the technical challenges, though both are considerable. Rather, it is largely a question of leadership, market structures and political will.”
The key to driving clean energy deployment by utilities may be policy and regulation, but some utilities have displayed their leadership on these issues.
“There is some level of leadership among some of the utility executives that do get it,” Wellinghoff told Utility Dive.
He pointed to municipal and cooperative utilities such as the Sacramento Municipal Utility District and Austin Energy — who were not included in Ceres’ report because it focused on investor-owned utilities only — as being clean energy leaders.
Utilities who “are closer to their constituents” and “don’t have two different masters to serve” — the ratepayer and the shareholder — “most often provide the highest levels of renewable and energy efficiency services,” Wellinghoff said.
In terms of investor-owned utilities, it’s largely up to “those utility executives who understand the wave is coming and try to get ahead of that wave,” Wellinghoff told Utility Dive. “There’s not many of them that are in that position. I think many of them are starting to be up to their necks in the wave, but there are a few number of them that are trying to see how they can paddle out and survive. And it’s going to be difficult for them.”