2016 roiled the power sector as a reality TV star ascended to the nation's highest office.
Donald Trump's election could disrupt some ongoing trends in the electrical industry, including decarbonization goals set under the Paris Climate Accord and President Obama's Clean Power Plan. And coal generation could see a modest boost after a year of natural gas' dominance. More than anything else, Trump's election has injected uncertainty into an industry that thrives on certainty in power markets and long-term investments.
With that in mind, Utility Dive solicited submissions from readers and industry thought leaders for our popular predictions piece. The response was nearly overwhelming, with major power players expecting disruption in state policies and energy markets in the year to come.
1. State policies a "wild card" driving the clean energy switch in 2017
Anne Pramaggiore, CEO, Commonwealth Edison: Three major trends are driving what amounts to a revolution in the energy industry. First is the acceleration of technology innovation, which is literally changing our world and upending traditional business models in many sectors. Second is ubiquitous and universal digitization, which is changing customer expectations and behavior, and driving us to develop new ways to interact with them. And third is a concern over the environment and the impacts of climate change, which in turn brings a push for a clean and lean energy system.
How these three trends come together to pivot energy companies – and the nation – to a clean energy future will be dictated largely by policy forged at the state level. These evolving state policies constitute something of a wild card in 2017 and beyond.
State policy has never been more important. Policy for renewables and distributed generation is set at the state level, as are energy prices that are central to the competitive success of different energy sources. Carbon pricing, apparently gridlocked at the federal level, seems to be shifting to the states. And the business model of the future utility – driven by the three trends noted above – will be determined by state policy.
In some states, changing policy is already helping to define the new utility business model, which centers on the use of grid infrastructure as a platform to connect customers with new services, alternative and renewable power sources, and home energy options that offer more choice and control.
The new business model, as well as the clean energy future it will drive, requires diverse players, both traditional and emergent, to be at the policy table. Who sets the table and who takes part will vary by state – but the policy changes that will rule the impact of technology’s advance require that these tables be convened.
Indeed, this was the story of Illinois in 2016 and will continue to be in Illinois and other states in the years to come. The recently passed Future Energy Jobs Act in Illinois is a strong example of how a state policy table of diverse environmental, consumer, business, and labor interests can help bring about the clean energy pivot and associated changes in energy company business models. This new law pivots Illinois to clean energy through preservation of its historic nuclear advantage and enhanced support for solar, and also addresses the new utility business model change by allowing energy efficiency – one of the utility's most significant new business functions – parallel treatment to more traditional utility assets.
When it comes to forging the clean energy future that technology enables and customers want, state regulators and policymakers hold the key. With the encouragement and involvement of diverse stakeholders, they will meet the challenge in 2017 and beyond.
2. Grid security, transmission planning will be key focus areas for ISOs
Andrew L. Ott, CEO of PJM Interconnection: There are several significant factors to watch in 2017 in the electric industry. The focus on grid security and resilience along with a trend of flat or shrinking demand growth, aging infrastructure and the changing fuel mix are driving changes to grid operating characteristics, market dynamics and transmission planning drivers. In the coming year, the industry will be driven by a series of inter-related issues – evolution of system planning, fuel security, security and resilience and public policy considerations.
The traditional drivers of infrastructure additions were load growth and connecting distant generation sources to population centers. However, that has changed.
Load growth is negligible in many areas. (At PJM we forecast peak load growth of less than half of one percent per year.) At the same time, more efficient technology, specifically energy efficiency and new natural gas combined cycle generation closer to load centers, has changed power flow patterns, which reduces the need for additional large-scale transmission expansion projects. The reduction in larger scale projects has allowed focus to be shifted to resolving aging infrastructure concerns on lower-voltage facilities.
More efficient technologies, the capacity performance construct and upgrades to the system have made the grid increasingly robust and resilient. Last summer, for example, was the first time PJM met a peak demand of more than 150,000 megawatts without invoking emergency procedures and while net exporting power.
Moving forward, transmission planning will need to take into account gas/electric coordination, fuel security, distributed resources, energy efficiency, and storage. Distributed energy resources will continue to grow and can provide the industry with opportunities. Increased visibility of distributed resources to the wholesale market operator has potential to add flexibility to the grid and help lower costs.
Fuel security will continue to receive attention. With the changing fuel mix, PJM is examining the greater reliance on natural gas with its just-in-time delivery risk – and how to mitigate that risk.
Security – both physical and cyber – and resilience will continue to be a strategic focus. Grid security is a priority for the electric power sector and its government partners. Threats to overall security and resilience are evolving at a rapid pace and must be fully understood to properly address their risks and mitigation.
As an industry, we will need to work with the research capabilities of the federal government and national laboratories
3. Solar energy will continue to spark energy innovation in 2017
Anne Hoskins, Chief Policy Officer, Sunrun: 2017 will be the year of differentiation and innovation.
As solar companies innovate to add grid services, will regulators embrace distributed solar as an opportunity to improve the grid or view it as a problem to contain? Regulators have the opportunity to facilitate collaborative initiatives between distributed energy companies and regulated utilities which can bring enhanced value and reliability to the distribution grid.
Through ongoing grid modernization and regulatory reform proceedings in states like New York, Hawaii, Minnesota, Rhode Island, DC, Massachusetts, and California, regulators can direct utilities to open their networks to new distributed technologies that can improve electric service for all ratepayers.
Innovations such as advanced solar technology, energy storage, and other smart home energy services offer a myriad of solutions for the grid of the future that will save all customers money, including frequency response, load shifting, peak reduction, reliability-based demand response, and voltage support and dispatch. On top of that, they add the societal benefits of more energy choice, cleaner air, and local jobs.
States and regulators that opt instead to fortify old networks with regressive and confusing rate designs, such as demand charges, risk foregoing the true value of distributed energy. Technology is forging ahead and competitive solar providers will work every day in 2017 to reduce costs and increase value for customers. My prediction and hope is that increasing numbers of state regulators will catch this wave of innovation as they work to advance the public interest in 2017.
4. Loss of baseload power in organized markets will be "more acute"
Ray Gifford, former chairman of the Colorado Public Utilities Commission and partner at Wilkinson Barker Knauer, and Matt Larson, partner at Wilkinson Barker Knauer: Concerns over the loss of baseload power that roiled organized markets around the country this year will become more acute in 2017. This issue has two discrete phases: Phase I is the actual or threatened loss of generation by bankruptcy or closure; Phase II involves emergency state action to preserve the baseload capacity, such as the complicated and controversial efforts in Illinois, Massachusetts, New York and Ohio last year.
With regard to Phase I, issues with the loss of nuclear and coal-fired plants will continue. In 2017, expect a new wrinkle. Natural gas-fired generation will join coal and nuclear in being proved uneconomic due to market design issues and public policy preferences affecting price formation.
We already see indicators of gas entering a Phase I crisis in the California ISO. In December, La Paloma Generating, owner of a 1,022 MW gas-fired power plant northwest of Los Angeles, filed for bankruptcy, asserting CAISO “has failed to provide a market mechanism to compensate the facility and other similar facilities for the reliability service they provide.” Dynegy also filed a 90-day notice that it would retire 1,500 MW from two units at its gas-fired Moss Landing Power Plant, and Calpine placed its 672 MW Sutter Energy Center in “cold lay-up” last year.
The continuation of coal and nuclear exits (or threatened exits), and the addition of gas to the Phase I equation, will create pressure on states to take action to save at-risk baseload power. Indeed, legislation similar to Illinois’ Future Energy Jobs Bill may be introduced in Connecticut, New Jersey, Ohio and Pennsylvania next year. The mammoth Phase II question for 2017 is whether any state takes the ultimate step and seeks to re-regulate. Keep an eye on Ohio.
Will Washington intervene? Will a Federal Energy Regulatory Commission dominated by Trump appointees address the continuing exit of coal, nuclear and now, natural gas, generation from organized markets? The loss of baseload power and the implications for fuel diversity and grid reliability will – or at least should – top the list of electricity problems Washington will address in 2017. The regulatory preference for using market mechanisms has collided with public policy preferences to manipulate prices. That disjunction between false pricing and misaligned market rules will be worked out, with varying inelegance, in 2017.
5. State and local decisionmaking will trump federal mandates
Sue Kelly, President & CEO, American Public Power Association: We in public power expect to continue financing needed utility investments in 2017 with tax-exempt municipal bonds. Municipal bonds have financed $2 trillion in public infrastructure investments in the last decade—$110 billion in public power investments alone. We’re glad President-elect Trump has already voiced his support for preserving the tax exemption for municipal bond interest, since tax reform will be high on Congress’s agenda next year.
I also hope that 2017 may usher in a new era of states and local communities being empowered to make their own power supply and demand resource decisions. This would be welcomed by American Public Power Association members — community-owned, not-for-profit public power utilities.
In recent years, wholesale electric markets in some regions of the country have gravitated toward centralized procurement of capacity under rigid federally imposed rules. These rules hamper our members’ ability to make their own resource decisions, consistent with local preferences and values. However, under the new administration, we might see more support of state action and renewed interest in bilateral contracts between energy resource providers and distribution utilities.
In the area of grid security, I would expect the federal government to continue to embrace its role as a facilitator for information sharing and best practices, while avoiding new federal mandates that further burden electric utilities. This is one area where the downside of not cooperating is simply too great—the entire industry and all levels of government must work together to protect the nation’s grid.
6. Legal debates will take center stage at FERC
Ari Peskoe, senior fellow in electricity law at Harvard Law School: While lawsuits about the roles of state and federal regulators will continue to grab headlines in 2017, action at FERC will shift the debate away from the legal limits of state action to the scope of federal authority.
FERC recently proposed a rule that will allow distributed energy resources (DERs), such as rooftop solar and small-scale storage, to participate in wholesale electricity markets. FERC should finalize this rule in 2017, which will require each market operator to develop a compliance plan for FERC review. Meanwhile, in New England, market participants are discussing proposals to integrate state renewable energy and CO2 goals in FERC-regulated wholesale markets. If they can agree on market reforms, they will ask FERC for permission to approve their proposal in 2017 (I argue that FERC has legal authority to integrate markets and public policies). Other regional markets may follow suit.
Neither initiative will change the industry overnight, but the long-term implications could be far-reaching. FERC proceeds incrementally; it assembled its legal authority to oversee regional auction markets from a decade of utility-specific orders, rulemakings, and legal victories. FERC has a history of adapting in response to industry changes. It did not mandate the recent growth in DERs or the ongoing transition to a cleaner grid. But recognizing that these trends are occurring, FERC ought to facilitate the deployment of resources that match new technological capabilities and meet public needs.
Entrenched interests will try to persuade FERC that these initiatives are too complicated or that it does not have legal authority to proceed. For DER and clean energy advocates, there is a risk that a poorly designed mechanism could create a lever for impeding state-level progress. If FERC moves forward, regional market operators will implement these mechanisms and become the primary forums for debates about how these new market mechanisms evolve. Ultimately, federal courts will be asked to weigh in.
Last year, the Supreme Court issued a decision about demand response that reinforces FERC’s broad authority to take actions that enhance competition and otherwise improve wholesale markets. In 2017, FERC will feel emboldened by this victory and press ahead on initiatives that will enable a twenty-first century electric grid.
7. More states will tackle grid modernization
Graham Richard, CEO of Advanced Energy Economy: We at Advanced Energy Economy expect that in 2017 more states will follow the lead of New York, California, Massachusetts, and Hawaii in undertaking major regulatory action to overhaul their electricity systems.
In fact, up to a dozen states and jurisdictions such as Washington, D.C., will be pursuing grid modernization or alternative rate design to accommodate the rapidly changing technologies that will make our electric power system more flexible and customer-focused.
I believe we will also see greater interest on the part of regulators and utilities in taking a comprehensive approach to rate design for distributed energy assets, avoiding the reactive disputes over fixed charges and net metering we have seen in the past year or two.
Finally, starting with FERC’s proposed rule removing barriers to participation of energy storage and aggregated distributed energy assets in the organized electricity markets that account for more than half of the electricity generated and consumed in the U.S., we will see rapid growth and breathtaking innovation.
When taken to scale, these technologies, especially when used in combination, will dramatically change the way we meet our energy needs. By the end of 2017, I believe we will be well on the way to having an electric power system that is truly fit for the 21st century.
8. Deregulation in electrical markets will continue and new markets for clean technologies will emerge
Alex Gilbert, cofounder of Spark Library: The longer term trends driving change in the power sector will accelerate in 2017.
Electricity deregulation will continue with wholesale markets growing and states continuing to change how electricity services are delivered. New markets for renewables, energy storage, and distributed energy will keep emerging. FERC's recent NOPR mandating participation of energy storage and aggregated distributed energy resources in wholesale markets should be watched especially closely.
State policy development will take on a renewed urgency as decarbonization advocates focus on state legislatures and PUCs. Several more states are likely to support struggling nuclear plants; existing RPS policies will remain robust but are unlikely to be substantially strengthened. States will continue to try to find successor policies to net metering, with some states making key breakthroughs.
The twin renewable and shale revolutions face a bellwether year. Declining prices and tax credit policy certainty will underlie more solar and wind capacity additions. More importantly, the project pipeline for 2018-2020 will develop and could surprise to the upside as the industries develop towards a post tax credit world.
Natural gas prices remain a key uncertainty: recent high volatility and a return to normal storage levels indicates 2017 natural gas prices may be the highest since 2014. Wholesale power prices could thus rise, coal generation may rebound (modestly), and struggling baseload generators will have a reprieve.
The federal government is the largest 2017 uncertainty. President-elect Donald Trump and Republican congressional majorities could begin rolling back the Obama climate legacy almost immediately but the short term effects are likely to be small. The Clean Power Plan is likely the main policy target but it's status as a finalized regulation means it could take beyond 2017 for Republicans to repeal it. However, the window for statutory changes to the Clean Air Act likely closes in 2017. Without legislation, executive action to restrict CO2 could still occur in the 2020's and utility/PUC planning in 2017 should reflect that.
Correction: An earlier version of this article misidentified Alex Gilbert as an analyst at the Breakthrough Institute.