2022 Outlook: Top US power sector trends to watch
At the start of the Biden administration's second year, government agencies are beginning to implement the Infrastructure Investment and Jobs Act, the bipartisan infrastructure package Congress passed last year. Concerns remain high about the reliability and security of the U.S. power grid, and the future of the Build Back Better bill and its clean-energy provisions remains uncertain. The Federal Energy Regulatory Commission, which now has a Democratic majority and a full complement of commissioners, is poised to play a key role in how much the administration's climate and energy policies advance.
States, utilities and other businesses continue to pursue ambitious clean energy and decarbonization goals, which are driving more deployment of renewable energy, storage, distributed energy resources and electric vehicles across the country. These resources are evolving too, with greater focus in the storage sector on long-duration assets and moves to build out the supply chain in U.S. offshore wind, for example.
The broad changes occurring in the U.S. power sector are prompting concerns, however, about ensuring the costs and benefits of the energy transition get distributed equitably. Utility Dive's editors and reporters summarize the top concerns, challenges and priorities across the sector for 2022 below.
Reliability and resilience concerns remain front of mind
In 2022, the power sector will likely continue to scrutinize and invest in building a grid that is more resilient to a changing climate and more severe natural disasters, said Michael Colvin, director of regulatory and legislative affairs in California with the Environmental Defense Fund. Utilities will be considering whether they should be putting more equipment underground or investing more in microgrids, for example, he said.
Some states will need to adapt their regulatory regimes to a changing resource mix, according to Seth Hilton, a partner at law firm Stoel Rives.
"You can hit a tipping point, and all of a sudden you have a ton of solar on the system … and then you have markets or regulatory regimes that aren't really structured to deal with those types of resources very effectively," Hilton said.
Software supply chains are vulnerable, ransomware a 'nuisance,' but experts say the grid will remain stable
The electric grid will likely remain stable, experts say, due to massive investments in security and a separation between operational systems and information technology.
"There has never been even a small outage caused by a cyberattack in the U.S., and I see no reason to expect one this year," security consultant Tom Alrich said in an email.
Utilities could actually start to see insurance premiums decline if their safety record holds as the risk is better understood, said Michael Gaudet, U.S. energy, power and utility leader within Marsh's financial and professional liability practice. One problem they're up against, is that a widespread grid failure would be catastrophic.
Marsh is an insurance broker that works with underwriters who provide utilities with cyber insurance.
Lloyd's of London in 2015 estimated the economic impacts of a widespread attack on the U.S. power grid could range from $243 billion up to $1 trillion in the most damaging scenarios. But the likelihood of such an attack is scant.
"I work in the insurance markets all the time interacting with underwriters. So I hear a lot of their perspective. The underwriters have a stigma related to utilities," said Gaudet. Ransomware will continue to be a threat, he said, but actual losses in the utility sector are minimal.
Ransomware will continue and largely be a "nuisance," Mark Carrigan, cyber vice president of process safety and operational technology cybersecurity at Hexagon PPM, said in an email. "A much greater concern to grid reliability are the supply chain vulnerabilities that are being discovered on a regular basis," he said. "This issue requires very little expertise to exploit and provides an attacker with wide latitude once accessed."
Supply chain threats are growing and are not receiving much attention outside of the software community, said Alrich.
"These are primarily IT threats and they can devastate a utility financially, even if they don't impact the grid," he said.
Transmission, gas infrastructure and market reform top FERC's agenda
The Federal Energy Regulatory Commission starts out 2022 with a full complement of commissioners, which FERC Chairman Richard Glick says will help the agency's decision-making process. Glick has set an ambitious agenda for FERC.
"It seems like there's a willingness to push pretty hard to move [the issues] through, if not on an expedited basis, at least in a pretty brisk fashion," former FERC Commissioner Tony Clark said.
Glick aims to issue a proposed rule early this year revamping requirements for transmission planning, cost allocation and grid interconnection, with a final rule coming before 2023, he said in December. FERC may break some of the issues into separate proposals, Glick has said.
Also, FERC is considering updating its criteria for reviewing proposed natural gas infrastructure projects, which haven't significantly changed since 1999. It could change how it decides whether the infrastructure is needed, how proposed facilities would affect the climate and environmental justice communities, and how greenhouse gas emissions could be mitigated.
"There's a lot, and it's being done in a pretty hotly charged political environment as it relates to pipelines," Clark said. "Capitol Hill is interested, the industry is very interested, environmental stakeholders are interested … it has the potential to be very controversial."
FERC will continue to review market rules to make sure they don't prevent emerging technology, such as energy storage, from participating in wholesale power markets while also ensuring the electric system is reliable, according to Jeff Dennis, Advanced Energy Economy managing director and general counsel.
FERC held a series of technical conferences last year on issues such as capacity markets, energy markets and ancillary service markets, teeing up possible action this year, Dennis said.
Expect power market growth in the West, more efficient trading in the Southeast
"Regionalization is on the move, whether it's for capacity sharing, … or energy markets to transact energy in real time and day-ahead or a full [regional transmission organization]," Vijay Satyal, Western Resource Advocates regional energy markets manager, said.
Satyal said he is following three main market developments.
In the West, the California Independent System Operator (CAISO) is working with stakeholders to develop an extended day-ahead market (EDAM) that would build on the existing energy imbalance market (EIM), which has grown to cover much of the West. The EDAM would be open to EIM participants. CAISO staff aims to issue a draft EDAM proposal in mid-April.
Meanwhile, the Southwest Power Pool (SPP) is moving ahead with market options for Western utilities. The grid operator last year launched its Western Energy Imbalance Service market, which provides real-time balancing services to Basin Electric Power Cooperative, Tri-State Generation and Transmission Association and other power providers.
Some Western utilities are considering joining SPP. The grid operator is in the early stages of developing a package of day-ahead and other services it calls Markets+ for utilities that don't want to join SPP, but want market services.
Finally, the Northwest Power Pool spearheaded an effort to create the Western Resource Adequacy Program, which was launched in December. The program, which SPP would operate, has 26 participants. The program is designed to help utilities make sure they have enough capacity to meet their needs.
Meanwhile, a group of Southeast utilities will be putting in place this year a computerized platform to make their bi-lateral trades more efficient, although critics contend it isn't a true market. Advocacy groups have asked FERC to reconsider its tacit approval of the platform, called the Southeast Energy Exchange Market, which went into effect when the agency deadlocked over the plan.
The offshore wind industry is establishing supply chains on the East Coast and preparing for westward expansion
Offshore wind in the U.S. received strong signals from the federal government about long-term opportunities for deployment when Interior Secretary Deb Haaland on Oct. 13 shared a road map of leasing activities on the outer continental shelf through 2025.
In February, the Bureau of Ocean Energy Management will hold the largest offshore wind auction to date, covering six areas in the New York Bight. The agency will continue to identify leasing areas in the Gulf of Mexico and off of Northern California. States also are setting deployment targets, with New York recently announcing an additional solicitation for up to 2 GW of offshore wind.
On the East Coast, states and the federal government continue to invest in the offshore wind supply chain in "a race to be the state that is leading the charge on that and bringing those jobs to their state," according to Autumn Proudlove, NC Clean Energy Technology Center senior policy program director.
As the federal government creates opportunities for leasing in other areas of the country, jobs and opportunities across the offshore wind supply chain will spread across the country, said Sam Salustro of the Business Network for Offshore Wind.
"We're already seeing manufacturers in the Midwest be participants" in various solicitations for offshore wind projects, said Salustro, the network's director of coalitions and partnerships in Maryland.
While solar and onshore wind are facing supply-chain issues right now, it's "less of an issue for offshore wind because it's still a couple of years off before installations really take off," said Patrick Luckow, an associate director at IHS Markit for gas, power and energy futures.
Storage advocates eye regulatory processes as the sector sees record-breaking growth
The U.S. energy storage industry continued to break records in 2021, installing an unprecedented 3.5 GWh of new storage in the third quarter of the year, and it was poised to surpass that number in the fourth quarter.
Several storage projects that have been under contract are expected to come online in the U.S. in 2022, said Jason Burwen, vice president of energy storage at the American Clean Power Association. In addition, storage advocates will be watching to see if some recent regulatory changes — like the change in capacity accreditation methods PJM uses — come to fruition.
The outlook for the storage sector in 2022 also hinges to a certain extent on whether the Build Back Better Act passes, Burwen said, with its proposed investment tax credit for stand-alone energy storage. If the bill passes, this market will become "an enormously crowded place for folks to get projects built...," he said.
Despite this record growth, battery supply chains have faced constraints in the last year. Although global supply is ramping up, demand has expanded faster, and logistical challenges to moving goods could raise prices and lead to project delays. The demand might also lead to greater attention to non-lithium battery technologies, Burwen said.
In California, a key issue for storage advocates in 2022 will be improving regulatory processes, like expediting approvals and streamlining permitting, Jin Noh, policy director of the California Energy Storage Alliance, said during a December webinar.
"[W]e can't do just-in-time procurement, as we've seen, when we have these macroeconomic shocks like supply-chain issues or COVID. This creates a lot of risks in achieving our goals," Noh said.
The long-duration storage market gained momentum as well, with 2021 seeing the debut of one project using iron-air-exchange batteries and applications for compressed-air energy storage at two proposed facilities in California. There is "a lot of recognition by investors that if we're moving rapidly to a clean energy future, energy storage, and particularly longer-duration storage, is going to have a very critical role to play," said Burwen. Even if deploying long-duration storage at scale is some years away, developing products, getting people familiar with them, and making sales and contracts starts now, he added.
Distributed energy resource installations will continue growing
Analysts expect distributed energy resource installations, including hybrid facilities, to continue growing this year despite ongoing supply chain problems.
Wood Mackenzie and the Solar Energy Industries Association anticipate residential solar installations will grow 12% this year, up from roughly 4,000 MW last year, according to a mid-December report. The consulting firm expects commercial and other distributed solar installations will also grow this year. Installations will likely be even higher if Congress passes the Build Back Better legislation, the firm said.
AEE's Dennis expects to see growth in hybrid solar and battery facilities in the 1 MW to 5 MW range that are connected to the distribution system and can participate in wholesale markets.
"That's a real trend we're already seeing, particularly in places like New England, where states have incentives for those kinds of programs," Dennis said.
FERC will have a role in ensuring that these types of resources can move quickly through the interconnection process, Dennis added. FERC may consider giving states more authority to oversee their interconnection, he said.
Vehicle electrification, especially of transit fleets, also is poised to take off this year, according to Dennis, in part due to Infrastructure Investment and Jobs Act funding for electric vehicle charging stations and for electrifying transit fleets.
"I think school bus fleets, in particular, are an incredibly interesting, great resource because of how predictable they are and because of the size of the loads that an electrified school bus fleet would have in a larger school district," Dennis said, noting that some bus depots can have 5 MW of load.
Electric vehicles have reached a tipping point
EVs, including battery electric and plug-in hybrid, reached about 5% of new vehicle sales in 2021 and could reach 7% to 8% in 2022, according to Plug in America Executive Director Joel Levin. "The big limitation is going to be the supply chain problems," he said.
Manufacturers' new offerings could result in 100 or more electric vehicle models available in the U.S. in 2022, with pickup trucks added to the mix for the first time.
Utilities are starting to see resulting load increases, and they will be rolling out new charge-management programs and rates in response.
Some areas will see "massive" additions of new load, said Gregor Hintler, U.S. managing director for The Mobility House, which develops systems to help fleet customers manage vehicle charging. In general, however, the load will come online gradually as customers purchase new vehicles.
Experts say the growth is expected, and utilities are preparing to meet it.
"Utilities are already including EV loads into their short- and long-term planning, which includes everything from generation to transmission to distribution," said Dan Bowermaster, the head of EV research at the Electric Power Research Institute.
While utilities already use EV rates to create incentives for charging in off-peak hours, Bowermaster said more smart-charging technologies will soon begin to allow the wider use of managed charging.
Maria Kretzing, director of innovation at Bidgely, said she was involved with five different regulatory proceedings or filings in 2021 that were related to managed charging, and she expects that number will triple in the next year.
"I think people are only going to continue to realize that investment needs to be made in that area," Kretzing said. "This is only going to come faster and faster."
Cities will continue to lead on building electrification
The U.S. Department of Energy turned its focus to building electrification in 2021, rolling out new initiatives and building codes to help eliminate greenhouse gas emissions and move toward a carbon-neutral economy by 2050. But observers say the federal government is playing catch-up to local leaders on the issue after years of inaction, and cities will continue to lead the way in 2022.
"Cities often have made ambitious climate goals ... and there's a lot of political will and support at the city level to make good on those goals," Jenna Tatum, director of the Building Electrification Institute, said, whereas federal and state focus on climate change "seems to be a little bit more varied and dependent on the administration."
Research from the Electric Power Research Institute "shows a growing trend for cities and states to continue with updating their building codes to favor electrification," Ram Narayanamurthy, EPRI's advanced buildings program manager, said in an email.
Big electrification news in 2021 came in a range of cities, including Denver's ordinance on energy efficiency, renewable energy and decarbonization for commercial and multifamily buildings; New York City's gradual ban on gas hookups in new buildings and Philadelphia's study of business diversification options for its municipal gas utility.
Cities have the ability to pass codes that go beyond state rules and can require only electric heating systems, but in most cases, "these are not gas bans, with exceptions provided for uses like commercial cooking," Narayanamurthy said.
"Cities can lead and drive this transition," said Tatum. "It's really what our theory of change is based [on]."
There is also a countervailing force, said Narayanamurthy. Some states are also outlawing gas bans "which is an opposing trend that ensures that fuel-based heating systems are embedded into the building stock for a long period of time."
A consumerist push from regulators could slow the energy transition
Rising natural gas prices, growing inflation and the end of COVID-related utility bill relief programs could trigger a sharper focus by utility regulators on retail electricity costs, leading to pushback on aggressive renewable energy plans, according to Paul Patterson, a Glenrock Associates equity analyst.
Utility regulators in states including Arizona, California and Kansas are raising concerns about utility overbuild, utility return on equity and electric affordability, Patterson said.
The California Public Utilities Commission in September moved forward with a process to develop ways to ease rising electricity bills. The CPUC said that if left unchecked, rising bills could make transportation and building electrification goals harder to achieve.
In addition, the Kansas Corporation Commission, in a November decision, said it was concerned about Evergy's $10.4 billion, five-year capital expenditure plan that includes building wind and solar facilities and upgrading its grid.
"Evergy's investment decisions, including the timing of investments, should not prioritize shareholder interests to the detriment of ratepayer interests," the commission said. "Upsetting this balance of interests could result in diminished returns to the company and/or the disallowance of certain investments."
Mark Christie, a Federal Energy Regulatory Commission commissioner, last year warned there could be a backlash to the energy transition if people are hit with rising electricity bills.
"If the public sees this as something that they're going to suffer through, that they're going to suffer outages or they're going to see skyrocketing power bills, I think you're going to see a lack of political support for it," Christie said during the American Council on Renewable Energy's Virtual Grid Forum in November.
Policymakers and utilities will more often make equity part of their decarbonization considerations
Advocates say a surge in coal retirements expected this year emphasizes the importance of a Build Back Better bill provision that would create incentives for clean energy workforce development and other investments in coal communities. According to the U.S. Energy Information Administration, coal capacity retirements slowed to 4.6 GW last year but will increase to 12.6 GW this year, above the 2015-2020 average of 11 GW per year.
To bring jobs to communities that are reliant on coal while also taking advantage of the existing interconnection points, some utilities and states are trying to site renewable resources at outgoing coal plants, according to Mike O'Boyle, director of electricity policy for Energy Innovation. Not every coal plant will have the right conditions for building wind or solar, however, he noted.
The Colorado legislature created the Office of Just Transition last year to help navigate grid decarbonization in communities that are reliant on coal. Its proposed plan outlines ways that, with support from the state, communities can attract new funding to support businesses and grow economically. It set the stage for Xcel Energy's clean energy plan in 2021, which considered coal retirement issues at the same time as renewable energy placements, O'Boyle said.
North Carolina Gov. Roy Cooper, D, recently signed an executive order that, among other things, added "environmental justice and equity" leads in each of the governor's cabinet departments and tasked them with integrating equity into the clean energy transition, in part by coordinating community engagement and public input into transition efforts.
These priorities have become a piece of policy design as well as a consideration that utilities will incorporate in certain programs, Proudlove said.
Utilities will "often set aside certain funding for specifically disadvantaged or underserved communities or provide higher levels of incentives for those communities" in programs like electric vehicle charging, she said.