While the Trump Administration is taking a number of steps to bolster coal-fired generation and rescind climate regulations, electric utilities should prepare for a very low-carbon future, former Energy Secretary Ernest Moniz told Utility Dive at the National Clean Energy Summit in Las Vegas last week.
Despite the White House’s withdrawal from the Paris climate agreement, “there is no going back on the fight against climate and the innovation prize is enormous,” Moniz said. “We are talking about multi-trillion-dollar markets. The real issue is that the U.S. needs to capture a big part of that market to keep its innovation edge.”
As part of the shift to low carbon energy, the world has added a terawatt of renewables capacity in the last decade, with about a quarter of it in the U.S. and about half in China, Moniz said. “China is moving fast for a variety of reasons, including its very real concern about conventional pollution, its intention to be a leader on climate change, and its effort to capture the opportunity in renewables manufacturing,” he added.
Very low carbon ahead
Utilities differ depending on how they are regulated, whether they are vertically integrated, and whether they are investor-owned, public power or cooperative utilities, he noted. But broadly, the first thing he would say to utility CEOs is: “expect to go to very low carbon.”
They may encounter “bumps in the road” and delays “but we are going there and if they are making long term decisions and capital allocations, they would be crazy to base them on a high carbon future,” Moniz said. “Projections now show the Clean Power Plan targets will be achieved nationally, even without the Clean Power Plan.”
Without the CPP, however, state energy profiles will differ significantly, he said. “I would say to utility leaders in those states that if there is a 32% reduction in emissions by 2030 nationally, the few states which do not move in that direction are going to be behind the eight ball competitively.”
Moniz v. Perry
Moniz's views put him at odds with his successor at DOE — current Energy Secretary Rick Perry.
Perry testified before the House Energy and Commerce Subcommittee on Energy Oct. 12 about his department's priorities.
Among the top is bolstering the use of fossil fuels. A key part of that is DOE's recent notice of proposed rulemaking (NOPR) asking the Federal Energy Regulatory Commission to provide cost recovery for power plants that keep a 90-day supply of fuel onsite. That excludes renewables and most natural gas plants, but includes coal and nuclear facilities.
Perry told the subcommittee “America’s energy dominance” is dependent on its grid’s reliability and resilience. That can only come from “a diverse resource mix that includes traditional baseload generation with on-site fuel storage that can withstand fuel supply disruptions caused by natural and man-made disasters.”
He referenced DOE’s Staff Report on Electricity Markets and Reliability in asserting that the grid’s reliability is threatened. He added that premature retirement of “fuel-secure traditional baseload resources” that include “environmentally compliant coal and emission-free nuclear resources” now threatens the grid’s resilience.
The Staff Report warned plant closures could affect electricity delivery to consumers, Perry told the subcommittee. One of its key recommendations was “to correct distortions in price formation in the FERC-approved organized markets,” he said. That is why he directed FERC “to fully value the grid resiliency benefits provided by traditional baseload resources with on-site fuel storage capability.”
In response to subcommittee questioning, Perry said the Obama administration had intervened in energy markets to the detriment of the coal and nuclear industries. His intent is to assure “we have an all-of-the-above energy strategy [and] that it is as free market as it can be,” he said.
Reliability and resiliency
While Moniz may have a different view of what's needed to assure reliability and resiliency for the grid, his department’s Quadrennial Energy Review argued rate structures should indeed address “today’s grid and the system we are moving to,” he said. “A lot of features of the two-way flows of distributed generation and storage are coming onto both the bulk power and distribution grids that are not internalized in current rate structures.”
Energy regulators and industry analysts told Utility Dive the DOE NOPR could lead to wholesale power market confusion by regulating competitive prices.
"It’s gonna be as expensive as hell,” former FERC Chair Jon Wellinghoff said. “We will be paying the full freight on coal and nuclear plants."
Moniz said the NOPR’s impact on wholesale power markets will depend on how it is interpreted by FERC. He agreed the DOE head has the authority to put an issue on FERC’s agenda and require the commission to address it. “But the commissioners could say ‘we’re going to do it’ or ‘we’re not going to do it” or ‘it’s an interesting idea.’ There are obviously going to be mixed reactions in the public comment period it will face.”
If FERC implements the proposal, it could create a mixed market between competitive pricing and cost of service pricing and it is unclear how that would work, Moniz said. If a FERC action influences the dispatch order, it could raise the overall clearing price and that might even favor renewables, he suggested.
Nuclear, R&D agreement
While Moniz and Perry differ in some key areas, a point of agreement between them is the importance of a robust nuclear and R&D sector in the U.S.
While much of Perry’s Oct. 12 testimony before the House energy subcommittee was about the DOE NOPR, he spent significant time addressing the topics of nuclear power and research and development.
“We have a national security interest in the nuclear industry,” Perry told the subcommittee. If the industry goes unsupported, “we lose our intellectual supply chain of bright scientists” and that will lead to the loss of global leadership in nuclear energy which will, in turn, "affect our ability to address the weapons.”
Moniz echoed those sentiments.
A strong nuclear supply chain, including its human resources, is key to sustaining national security needs, he told Utility Dive. Current gaps in that supply chain “could make our non-proliferation approach less effective.”
Moving into the realm of nuclear power, Moniz said it offers two externalities that are “societal goods” and could be incorporated into pricing. “One is its zero carbon merits. The other is the importance of a domestic nuclear supply chain for national security, from non-proliferation to serving our direct national security needs.” He cited research from the Energy Futures Initiative, which he leads, in support of these conclusions.
Coal does not offer carbon benefits and the DOE Staff Report and most studies he has seen do not show it is “critical for reliability,” he said. “What is left is resilience. There are examples of coal plants providing resilience but it’s also easy to find examples where coal-powered generation went offline like other types of generation during emergency outages.”
U.S. R&D leadership needed
Both Perry and Moniz also highlighted the importance of R&D.
U.S. leadership “on early-stage energy technology research and energy security policy is sorely needed, and we intend to seize every opportunity,” Perry told the subcommittee.
Perry reported the FY2018 DOE budget calls for $636 million to support R&D on renewables, $280 million for fossil energy R&D, $703 million for early-stage nuclear technologies R&D, and $120 million for work to “strengthen, transform, and improve” the distribution system.
Moniz acknowledged that Perry has “embraced” the innovation agenda his department initiated. The problem is that the administration’s proposed budget “cuts in half rather than doubles spending,” as planned when Moniz led the department, he said. “That is disarming in the effort to capture the economic benefits of innovation and deployment.”
Moniz said he is “betting on Congress to provide some stability in these budgets." That suggests there will be the usual deal-making in the budget shaping process, for which areas of agreement like the value of supporting nuclear and R&D might be useful.
Internet of things
Looking beyond the current debates over carbon regulations and fossil fuels, Moniz said the distribution system is going to be changed dramatically as “the internet of things” makes possible high penetrations of distributed energy resources. It remains to be seen who will benefit from the value created by that system integration, he said.
He finds “some of the most interesting experiments” into what the distribution system can manage coming from co-ops and public power utilities. “There are big unresolved distribution system issues in front of and behind the meter for utilities. What are they going to be allowed to do? What are they capable of doing?”
The competition may come from big data companies that have greater data management capabilities than utilities. But, he asked, “how are the regulators going to treat that?”
Along with the expansion of distributed energy resources, Moniz expects a continued increase in renewable energy in the U.S.
“It is important to remember a large part of renewables growth has come from state standards,” Moniz said. They remain in place and, after the president’s withdrawal from the Paris climate agreement, many governors and mayors began talking about increasing them, he added. “Let’s face it. Just about everybody understands where we are going.”
Moniz noted that Arkansas Public Service Commission Chair Ted J. Thomas recently told the New York Times that while his state is a leading opponent to the Clean Power Plan, it is moving away from coal and turning to low cost natural gas and renewables.
Even without the Clean Power Plan, “regulations on carbon are coming” and that leaves a "pretty simple choice," Thomas added. “You can either be prepared or unprepared.”