The Utility Dive Outlook on 2023

The energy transition continues in the U.S with increasing momentum, but also some significant bumps in the road.

The Inflation Reduction Act and its multitude of tax credits and other incentives is expected to provide a major boost to the clean energy sector. Increasingly ambitious government and corporate decarbonization goals are also helping to drive renewable and energy storage deployments.

But ongoing supply chain difficulties, inflation, rising interest rates and an anti-dumping solar trade case have put a crimp in the sector’s overall growth trajectory.

The Federal Energy Regulatory Commission, the Department of Energy, grid operators and others are dealing with numerous other challenges as well, including how to get more transmission built and improve the process for interconnecting new resources to the grid.

While 2022 didn’t see the type of grid disruptions Winter Storm Uri caused in 2021, reliability concerns persist in many parts of the country, and it is unclear if sufficient resources exist to meet power demand, especially in extreme weather conditions. Recent high-profile attacks on substations in Washington and North Carolina have also raised the spotlight on both cybersecurity and physical grid security. Federal regulators may consider new security rules, and there is a growing focus on vulnerabilities in distributed energy resources and supply chains. 

Meanwhile, electric vehicles are seeing rapid sales growth, but that sector faces key questions about how tax credits in the Inflation Reduction Act will be implemented and how a nationwide network of charging stations will be built.

Below is a high-level look at some of the major trends shaping the U.S. power sector in 2023.

FERC: Transmission tops the agenda after Glick’s exit leaves the agency shorthanded

The Federal Energy Regulatory Commission starts the year down a commissioner and with a new leader, acting Chairman Willie Phillips.

Having only four commissioners could slow action on more contentious issues at FERC, such as revising its policies for reviewing proposed natural gas pipelines and liquefied natural gas projects, according to observers. However, the vast majority of FERC decisions are unanimous, so the agency should be able to continue advancing most of its cases, they say.

The agency appears poised to act on two proposals that have completed the public comment process: regional transmission planning and cost allocation and generator interconnection. Both proposals could help speed the connection of planned renewable energy facilities to the grid.

FERC will also likely continue to focus on grid reliability and resilience, a priority for Phillips, who formerly worked at the North American Electric Reliability Corp., which oversees grid reliability.

Other issues FERC may tackle include interregional transmission planning, its backstop siting authority and the risks extreme weather poses for grid reliability.

FERC will likely continue to have a heightened sensitivity to how its decisions affect consumers, according to Christine Tezak, managing director at ClearView Energy Partners, a research firm.

In a period of inflation, rising interest rates and high commodity prices, “the idea of incremental rate impacts becomes more intense, and so I don't expect that to decline over the next year,” she said.

Congress: Divided legislature dims the outlook for action on energy

With the Senate controlled by Democrats and the House run by Republicans, observers doubt the 118th Congress will pass significant energy legislation this year.

Even on issues like permitting reform, which in the past had bipartisan support, Democrats and Republicans will likely be divided, according to Tezak. House Republicans will likely try to show they are in line with positions taken during the Trump administration, and given divisions in Congress last year, bridge-building between the parties appears doubtful, she said.

House Republicans intend to hold hearings to review the implementation of the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, which includes billions in spending on the clean energy sector, according to Tyson Slocum, energy program director at Public Citizen.

Top priorities for Cathy McMorris Rodgers, R-Wash., chair of the House Energy and Commerce Committee, include grid reliability, strengthened energy supply chains and permitting reform, she said last month.

Sen. Joe Manchin, D-W.Va., remains chairman of the Energy and Natural Resources Committee. Manchin’s support was key to passage of the Inflation Reduction Act. He also played a key role in ending former-FERC Chairman Richard Glick’s tenure at the agency.

Cybersecurity: New regulation, rules possible amid rise in physical attacks

Amid the war in Ukraine and the continuing rise in ransomware, there was much talk in 2022 of cybersecurity and what threat hackers may pose to electric grid reliability. Yet it was a pair of physical attacks, resulting in thousands of outages on either side of the United States, that caught the industry’s attention in December.

“The physical substation attacks towards the end of last year raised the alarm bell,” Jason Christopher, director of cyber risk at Dragos, said in an email.

Multiple substations in Washington were damaged on Dec. 25, leading to more than 14,000 outages on the Tacoma Power and Puget Sound Energy systems. And a North Carolina firearms attack on multiple substations earlier in the month knocked power out to about 45,000 Duke Energy customers.

There are practical limits to physically defending remote substations, but “the industry should expect further regulatory inquiries and potential actions from the federal government in response,” Christopher said.

While physical attacks grabbed headlines, the cybersecurity threat is growing and experts say the rise of distributed energy resources creates a larger attack surface.

FERC is considering developing new cybersecurity rules for DERs on the bulk electric system, and the Department of Energy is funding “next-generation” cybersecurity research, development and demonstration projects.

Despite efforts to secure the grid, the biggest cyber threat to the power industry in 2023 will be “supply chain attacks, especially those that come through software,” said independent security consultant Tom Alrich. “These are currently the least understood of cyberattacks.”

Electric utilities “should be prepared for the increasing sophistication of supply chain compromise threats,” Roya Gordon, a security expert at Nozomi Networks, said in an email.

The North American Electric Reliability Corp. has scheduled a meeting in February and its Compliance Committee and Technology and Security Committee are both scheduled to make presentations. “Let’s be on the lookout for further NERC guidance after their February meetings,” Gordon said.

Reliability: Extreme weather, supply chain constraints and plant retirements will continue to pose challenges

Grid reliability continued to be a key priority and challenge for regulators and utilities across the country last year, although experts say that the power sector managed to avoid a worst-case scenario like the widespread blackouts and more than 200 deaths that occurred in Texas as a result of Winter Storm Uri in 2021.

Looking to 2023, power systems will face three main challenges when it comes to grid reliability, Arne Olson, senior partner with Energy and Environmental Economics, said in an email. First, extreme weather conditions beyond what has been planned for in the past, especially heat waves, which can lead to high electric loads, as well as wildfires and storms that can damage generators and transmission lines. At the same time, the continued retirement of firm generation, largely coal and natural gas, will pose challenges, he said. And then there are ongoing supply chain-related challenges that can delay the development of resources to replace the retiring generation.

Extreme weather-related grid challenges vary by region. California, for instance, experienced a 10-day, record-breaking heat wave that required the state to call on the gigawatts of energy storage it has been adding to its grid as well as demand response. In the New England region, meanwhile, the big question for energy planners is “how we’re going to get through this upcoming winter,” Caitlin Marquis, managing director at Advanced Energy Economy, said last month. 

“I think part of it is trying to manage through unforeseen disturbances or unexpected cold snaps — long-duration cold events,” she added. 

Utilities and regulators are working to combat these challenges in different ways. Many utilities are updating their load forecasts and analyzing how high their electric loads could be based on potential heat wave scenarios, according to Olson. 

“Utilities and regulators have also needed to be flexible with timelines and contract re-openers for near-term resources that are experiencing delays in development. And in some cases we have seen delays in the retirement of firm resources,” such as the 2.2 GW Diablo Canyon nuclear plant in California, he added. 

Power sector stakeholders are also continuing to pursue solutions for greater regional collaboration in the West — like the California Independent System Operator’s extended day-ahead market — which could have significant potential to alleviate some reliability concerns, according to Olson.

Renewable energy: The sector is poised for more innovation, growth and tumult after the Inflation Reduction Act

The renewable energy sector received a massive boost with the August passage of the Inflation Reduction Act, setting up 2023 to be a year of both expansion and continuing growing pains as companies take advantage of billions of dollars in tax credits while dealing with ongoing challenges.

“The IRA is fantastic,” said John Smirnow, the Solar Energy Industries Association’s general counsel and vice president of market strategy. “We're already seeing a renaissance in American solar manufacturing — billions of dollars of new manufacturing investments. We think those announcements are going to accelerate as we go into the new year,” he said in December.

The solar industry saw declining growth throughout 2022 due to ongoing global supply chain disruptions in addition to the enactment of the Uyghur Forced Labor Prevention Act, which caused some solar module imports to be held at the border. Uncertainty about future imports due to a tariff circumvention investigation by the U.S. Department of Commerce also impacted growth.

As a result, the increase in demand for solar projects comes at a time when the industry’s supply chain remains uncertain, though the industry has committed to building up domestic manufacturing. Solar company Hanwha Q Cells announced Jan. 11 that it will commit $2.5 billion to expanding its solar production in Georgia. 

As domestic manufacturing of solar expands, the industry is transitioning from passivated emitter and rear contact, or PERC, cells to the more efficient tunnel oxide passivated contacts, or TOPCon.

“Within a few years, we expect to replace PERC as the dominant technology with things like heterojunction and TOPCon,” said Becca Jones-Albertus, director of the Department of Energy’s Solar Energy Technologies Office.

Robyn Beavers, CEO of smart grid services company Blueprint Power, said that she sees the renewables sector undergoing both incremental and disruptive advancements in the coming years, including an “explosion” of offshore wind thanks to floating wind turbine advancements, more efficient solar, and artificial intelligence applications for predicting energy demand and ensuring grid stability.

Hydrogen: Experts expect major growth in 2023

There’s no question that 2022 was a landmark year for the hydrogen industry. First the 2021 bipartisan infrastructure law, which created the $8 billion hydrogen hub program, rang in the new year. Then the Inflation Reduction Act and its first-ever tax credits for low-carbon hydrogen production followed.

2023 should be the year we see the real impact of these new laws. Experts say the wave of project announcements spurred by 2022’s policy developments is likely to arrive this year.

“If you look at the announcements in the past year, it shifted from a few particular projects in the 10-50-MW range to now many in the 100-MW range,” said Dave Edwards, director and advocate for hydrogen energy at Air Liquide, one of the nation’s largest producers of hydrogen.

Air Liquide’s plans focus on the transportation sector. The primary opportunity, Edwards said, is in heavy-duty trucking, with several companies poised to release hydrogen-fueled models in the next 12-18 months.

The creation of a production tax credit, or PTC, for low-carbon hydrogen has also spurred talk of new projects and upgrades to hydrogen production facilities around the nation.

“With the PTC, industry is going to want to start putting steel in the ground, so we’re going to see a lot of industry stakeholders collaborating and potentially developing road maps” for new and existing facilities,” said Nick Connell, policy director for the Green Hydrogen Coalition.

For questions about siting, hydrogen developers are looking to the U.S. Department of Energy, which is expected to designate six to 10 federally-backed “hydrogen hubs.”  Applications for hub status are due by April, and the DOE’s decision is expected sometime in the summer or fall.

So far, the DOE has issued positive recommendations to 33 of 79 hydrogen hub applications, including concepts for the Western Interstate Hydrogen Hub, comprising Colorado, Utah, New Mexico and Wyoming, and from the Pacific Northwest Hydrogen Association in Oregon and Washington.

“When we look back on 2022 and 2023, they will be the years where we saw the transition in hydrogen from exploratory, small scale, regional planning, to large-scale deployment of an industry,” Edwards said.

Energy storage: Rising demand, federal tax credits point to strong growth in 2023

By nearly any measure, energy storage is expected to expand significantly in 2023 following robust growth in 2022.

As governments at all levels and companies broaden their carbon reduction goals, demand is rising for storage to hold energy produced by intermittent resources such as wind and solar. Developers and power plant owners plan to increase utility-scale battery storage capacity in the U.S. nearly fourfold in the next three years, reaching 30 GW by the end of 2025, according to the U.S. Energy Information Administration.

Meanwhile, thermal energy storage could boost long-duration energy storage capacity globally to between 2 TW and 8 TW, from a range of 1 TW to 3 TW by 2040, according to a November report by the Long Duration Energy Storage Council and McKinsey and Co.

The Inflation Reduction Act signed into law in August is expected to give a boost to large-scale battery storage projects in the U.S. Standalone storage systems will be eligible for a 30% investment tax credit — and up to 70% with additional incentives. 

With the investment tax credit subsidy for standalone energy storage, batteries don’t have to be paired directly onsite with solar PV generation to be eligible for an approximately 30% cost reduction. Previously, energy storage projects could claim the tax credit only when installed with a new solar generation facility and to the extent the storage project was charged at least 80% by the solar facility.

“There’s never been a better time to be in storage,” Susan Babinec, program lead, stationary storage at Argonne National Laboratory, said in an interview. "Commercialization is taking off. It's becoming an actual industry, which is amazing to watch."

Investors and researchers are taking more interest in storage, and government is “catalyzing public-private partnerships” to boost domestic manufacturing, she said.

While there is significant momentum behind storage, supply chain problems persist. George Crabtree, director of the Joint Center for Energy Storage Research at Argonne National Laboratory, said the price of lithium-ion batteries was up 7% in 2022 as demand outpaced supply. Supply-demand imbalances will likely continue for several years, he said.

Nuclear power: Advocates see gains in 2023 as critics cite costs, potential safety hazards

New sources of financial support, along with expanded action at the state and federal level, are giving a lift to nuclear energy as policymakers increasingly look to curb greenhouse gas emissions.

The industry is struggling to grow in the U.S., but Christine Csizmadia, senior director of state policy and advocacy at the Nuclear Energy Institute, said several states are broadening policy that advances nuclear energy such as by approving studies of small modular reactors, providing tax incentives for nuclear power plant construction and ending moratoriums on new plants.

"This is a brand new time," Csizmadia said, referring to increased interest in nuclear power. “We've never deployed new technology in the market like this."

Detractors of nuclear plants, particularly of SMRs, cite safety risks, rising costs and other concerns. Critics also caution that widespread nuclear generation in the U.S. is years, maybe even decades, away despite advances in SMRs and the policy shifts favoring nuclear.

The bipartisan infrastructure law included the $6 billion Civil Nuclear Credit Program to help preserve the U.S. reactor fleet. The first potential beneficiary is Pacific Gas & Electric Co.’s Diablo Canyon plant, with one unit slated to retire in 2024 and a second the following year. In November, DOE conditionally awarded PG&E $1.1 billion under the nuclear credit program to help keep both units open.

Cale Jaffe, director of the Environmental Law and Community Engagement Clinic at the University of Virginia School of Law, said at a Dec. 15 forum discussing SMRs in Virginia's coal fields that a political consensus is forming in favor of nuclear power "in a way that we haven't seen" in years.

EVs: Continuing rapid growth of adoption will depend on implementation of federal programs, utility interconnections

Electric vehicle sales roughly doubled in the past year and could double again in 2023, say industry experts. While that growth trajectory is not sustainable over the long term, they say the next 12 months will be key to continuing the transportation electrification trend as billions in federal incentives begin to hit the market.

Along with other investments, the bipartisan infrastructure law of 2021 provided $7.5 billion for a national network of 500,000 electric vehicle chargers while the Inflation Reduction Act extended federal tax credits for vehicle purchases. How those incentives are implemented will make a difference in how quickly the U.S. can reach its goals, say analysts. 

“There's an incredible amount of opportunity and momentum,” Electrification Coalition Executive Director Ben Prochazka said. The group advocates for policies to speed the adoption of plug-in vehicles and sees the federal incentives as key accelerators in the industry.

EVs as a percent of new vehicle sales have risen from around 2% in 2020 to more than 6% in the third quarter of 2022. Optimistically, EV sales could reach 10% this year, said Joe Britton, founder and former executive director of the Zero Emission Transportation Association.

“Obviously, I don't know that we can keep doubling every year, but we're going to see a ton of growth,” he said.

Over the next few months, Britton and Prochazka both expect the EV sector to be focused on how vehicle purchase credits are structured. Proposed guidance on the new sourcing provisions for the clean vehicles credit is expected in March, along with a notice of proposed rulemaking.

And the first tranche of funding for a national charging network is now rolling out to states, which are in the process of creating requests for proposals “so that they can get the companies ready and contracted to be able to build out the infrastructure network,” Prochazka said.

One possible stumbling block is the electrification of new charging stations. Delays caused by labor and equipment shortages are stretching some project times out by months.

Charger development times are now about 18 months, from station conception to energizing stalls, EVGo CEO Cathy Zoi said during the company’s third-quarter earnings call in December. Development time had been about 12 months, but delays on the utility side are stretching schedules, she said.

There is a “utility work backlog associated with transformer shortages,” Zoi said. “When we're building the configurations that we're building now, which is ultrafast 350-kW chargers with more stalls, that almost always requires a transformer upgrade.”

Amid a growing cyber threat to the U.S. electric grid, 2022 ended with a spate of physical attacks that could portend new security rules for some energy infrastructure, say experts.

“The physical substation attacks toward the end of last year raised the alarm bell,” Jason Christopher, director of cyber risk at Dragos, said in an email.

Multiple substations in Washington were damaged on Dec. 25, leading to more than 14,000 outages on the Tacoma Power and Puget Sound Energy systems. And a North Carolina firearms attack earlier in the month knocked power out to about 45,000 Duke Energy customers.

“Unfortunately, with 55,000 substations nationally, there are obvious risk-based limitations on addressing physical threats that need to be managed,” Christopher said. “The industry should expect further regulatory inquiries and potential actions from the federal government in response.”

The North American Electric Reliability Corp. oversees a set of critical infrastructure protection standards, known as CIP, governing rules for Bulk Electric System power equipment.

“I am hearing rumors that [the Federal Energy Regulatory Commission] may require NERC and the industry to revisit CIP-014, which is the physical security standard for critical BES transmission substations,” Kevin Perry, former director of critical infrastructure protection at Southwest Power Pool, said in an email.

FERC could consider stricter rules for more substations that operate between 200 kV and 499 kV, said Perry. But he added, “I don’t see FERC mandating costly physical security protections for those substations that engineering studies determine do not have a significant reliability impact if damaged or destroyed.”

Cost is a major barrier to improving physical security, experts agreed, particularly because grid equipment is often in remote areas and the electric system is designed with redundancies in place. Loss of a single substation, for instance, should not cause an outage.

“What are you gonna do wrap everything in Kevlar? That would be a very poor use of regulation, in my opinion,” said Thomas Pace, CEO and co-founder of NetRise.

While physical attacks may have grabbed headlines, the cyber threat is growing and hackers in Russia, China, Iran and North Korea all have sophisticated hacking abilities, say experts. And the rise of distributed energy resources creates a larger attack surface.

The Federal Energy Regulatory Commission is considering developing new cybersecurity rules for DERs on the bulk electric system, and the U.S. Department of Energy is funding “next-generation” cybersecurity research, development and demonstration projects.

Pace formerly worked with DOE, where he focused on industrial control systems security and said he expects more focus on software security in the coming year. That could include the potential for a software bill of materials, or SBOM, to be required for some vendors of some energy or grid-related services. The requirements would likely be “very prescriptive,” he said.

Modern software is constructed of many components, making vulnerabilities difficult to track, say experts. The federal government and the electric power sector are collaborating on an initiative to more readily disclose what components go into grid software.

“I predict that the biggest cyber threat to the power industry in 2023 won't be direct hacks like those depicted in the movies, but supply chain attacks, especially those that come through software,” said independent security consultant Tom Alrich. “These are currently the least understood of cyberattacks, and aren't directly covered by the NERC CIP standards.”

Electric utilities “should be prepared for the increasing sophistication of supply chain compromise threats,” Roya Gordon, a security expert at Nozomi Networks, said in an email.

NERC has scheduled a meeting in February and its Compliance Committee and Technology & Security Committee are both scheduled to make presentations. “They will likely be considering the role of technology and security in the ability for electric utilities to be compliant,” Gordon said. “Let’s be on the lookout for further NERC guidance after their February meetings.”

“I suspect we will see some enhancements to NERC [requirements] in regards to supply chain cybersecurity, but mostly I think they will be clarifications vs. additions,” said Ron Brash, vice president of technical research and integrations at aDolus Technology.

Brash also pointed to the importance of software security. “Asset management systems will begin to incorporate SBOMs to provide high-granularity visibility into the software and firmware running on assets,” he said.

And there is a threat that supply chain constraints combine with grid attacks to exacerbate the impacts of any disruption, said Ron Fabela, chief technology officer of cybersecurity firm SynSaber.

“Supply chain globalization and just-in-time manufacturing [have] been an enduring challenge for the electric sector,” Fabela said in an email. “An increase in physical attacks to grid components would exacerbate the issue, further amplified by any cyber disruption of suppliers through ransomware attacks.”

Cyber risks that impact operations will continue to gain attention from utility leaders, especially if the Securities and Exchange Commission finalizes new rules on cybersecurity risk and incident disclosure that would impact investor-owned utilities, said Christopher.

“Those would force boards of directors to have specific expertise on cyber risk management, including understanding the impacts associated with cyber events,” he said. “This could have a ripple effect across our industry and could shed additional light on the effectiveness of OT security programs and any potential resource constraints.”

The Federal Energy Regulatory Commission is heading into 2023 with a new leader, Acting Chairman Willie Phillips, a vacant seat and a packed agenda that includes transmission planning reform, grid reliability and possible market reforms.

Last week, Phillips outlined his priorities, which include grid reliability, transmission expansion, environmental justice and equity.

Being down a commissioner generally won’t affect FERC’s agenda, according to Phillips. “The commission will not sit on our hands on any important matters that need to move forward,” he said.

Nonetheless, the outlook for the agency shifted sharply late last year when Sen. Joe Manchin, D-W.Va., declined to hold a nomination hearing for former FERC Chairman Richard Glick.

Is a vacant seat a barrier to action?

FERC now has four sitting commissioners, potentially leaving them evenly split on some issues. They are Democrats Phillips and Allison Clements and Republicans James Danly and Mark Christie.

Without three Democrats, it may be hard to advance pending initiatives such as transmission reform and revisions to FERC’s decades-old approach to reviewing natural gas infrastructure, according to Tyson Slocum, director of Public Citizen’s Energy Program.

“A lot is going to hinge on who that fifth commissioner is going to be,” Slocum said. “I think it's reasonable to assume that you're going to have a stronger rulemaking if you've got that third Democrat.”

Based on past nominations, it will likely take at least six months before Glick’s seat is filled, according to John Moore, director of the Sustainable FERC Project at the Natural Resources Defense Council.

“The times are pressing and the last thing we need is for FERC to be in some kind of a stasis over the next year or two,” Moore said.

However, it’s not uncommon for the agency to operate with four commissioners, according to Marc Spitzer, a former FERC commissioner and a partner at Steptoe & Johnson.

“My experience when FERC was less than five members was not a particularly drastic or dramatic change in the course of business,” Spitzer said.

Compromise may be easier now that FERC commissioners and staff are working in the agency’s headquarters instead of from home during the COVID-19 pandemic, according to Spitzer. Face-to-face meetings make it easier to broker agreements compared to Zoom meetings, he said.

A focus on transmission, reliability and extreme weather

Todd Snitchler, Electric Power Supply Association president and CEO, expects Phillips, former chairman of the Public Service Commission of the District of Columbia and a North American Electric Reliability Corp. employee, will focus on grid reliability.

“I don't think that means he moves away necessarily from some of the work that FERC is doing, but I do think that that may be the perspective by which he views things,” Snitchler said.

Two issues teed up for action are regional transmission planning and cost allocation, and generator interconnection reform, according to Christine Tezak, managing director at ClearView Energy Partners, a research firm. The comment periods on the proposals closed in September and October, respectively, she said.

Other issues that fall in “quick succession” behind transmission are grid operations during extremely cold weather such as Winter Storm Elliott and gas-electric coordination, which appears to have contributed to a lack of fuel for some power plants during the December cold snap, according to Snitchler.

“Those pieces and parts all have to fit together and work properly in order for the system to function reliably,” he said. “[Phillips] will probably pay attention to those. It's a question of where he puts them on his agenda.”

Public Citizen’s Slocum also expects FERC to tackle weather-related market reforms.

“We can't have a new normal of every winter going through this massive uncertainty. It's just paralyzing,” he said.

FERC will also likely continue to investigate possible market manipulation in natural gas markets, he said, pointing to an investigation of market behavior during Winter Storm Uri.

Other issues FERC may tackle in 2023 include interregional transmission planning, its backstop siting authority, seasonal capacity markets and extreme weather, according to Moore.

FERC and the consumers’ pocketbook

FERC will likely continue to have a heightened sensitivity to how its decisions affect consumers, according to Tezak. In a period of inflation, rising interest rates and high commodity prices, “the idea of incremental rate impacts becomes more intense and so I don't expect that to decline over the next year,” she said.

“I don't expect [the commission] to be punitive, but I certainly am not holding my breath for a lot of ‘FERC candy’ to come rushing out the door,” she said.

Christie, a former state utility regulator, has expressed concerns about how FERC decisions on issues such as return on equity incentives affect ratepayers, Tezak noted.

“FERC needs to be absolutely focused on rising consumer costs for power,” Christie said Jan. 19 in response to news that the average price of electricity jumped 14.3% last year.

Electricity affordability is also a major issue for Phillips.

“When it comes to the clean energy transition, if we cannot do this affordably, we will not do it successfully,” Phillips said Jan. 19 during a media briefing. “It is incumbent upon all of us to make sure that we think about the least of us when we make our decisions.”

A do-nothing Congress?

Meanwhile, with the Senate controlled by Democrats and the House run by Republicans, observers doubt the 118th Congress will pass significant energy legislation this year.

Even on issues like permitting reform, which in the past had bipartisan support, Democrats and Republicans will likely be divided, according to Tezak. House Republicans will likely try to show they are in line with positions taken during the Trump administration, and given divisions in Congress last year, bridge-building between the parties appears doubtful, she said.

House Republicans intend to hold hearings to review the implementation of the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, legislation that includes billions in spending on the clean energy sector, according to Slocum.

“I don't see prospects for bipartisan legislation making it to the President's desk on energy or climate issues because energy has unfortunately just become an electoral lightning rod,” he said. “We're going to see lots of hearings about why Democrats and the Biden administration hate American energy so much, and how the reliability problems we've seen are the result of an over-focus on addressing climate change and promoting renewables.”

Top priorities for Cathy McMorris Rodgers, R-Wash., chair of the House Energy and Commerce Committee, include grid reliability, strengthened energy supply chains and permitting reform, she said last month.

Sen. Manchin remains chairman of the Energy and Natural Resources Committee. Manchin’s support was key to passage of the Inflation Reduction Act. 

In 2022, every segment of the solar industry but residential saw year-over-year declines in installed capacity growth as the industry struggled with the effects of various state policy decisions and ongoing global supply chain disruptions. Experts say the industry will continue to be dogged by trade barrier and supply-chain headwinds in 2023, but are optimistic about the tailwinds solar is receiving from the Inflation Reduction Act.

The tax credits in the IRA are expected to incentivize the buildout of domestic solar manufacturing as the industry prepares for the June 2024 expiration of President Joe Biden’s executive order placing a two-year moratorium on any new tariffs stemming from an ongoing U.S. Department of Commerce investigation.

The department announced Dec. 2 that it was making a preliminary affirmative determination in its investigation into whether solar panels imported from four Southeast Asian countries circumvented tariffs on Chinese-made solar components. This announcement came as a blow to the solar industry, as uncertainty over solar component supply had led to project cancelations throughout 2022.

The Uyghur Forced Labor Prevention Act, or UFLPA, has also impacted access to solar modules. Reuters reported in November that a records request revealed U.S. Customs and Border Protection seized 1,053 shipments of solar equipment imported from China between June 21, the day the law went into effect, and Oct. 25.

Wood Mackenzie senior analyst Sylvia Leyva Martinez said that the 2023 outlook for the solar industry will be “heavily determined by the total module shipments that get released” this year, but that a lack of transparency from CBP is making projections difficult.

Martinez has heard secondhand reports that some shipments have been investigated and released, but said that it is “very, very difficult to obtain primary data on the situation.”

“We’re expecting that the total module shipments are going to normalize by the end of Q2 2023,” Martinez said. “We still don't know how the entire situation is going to evolve, but according to the preliminary news that some shipments were already released, hopefully there will be more modules available through the second half of 2023.”

John Smirnow, the Solar Energy Industries Association’s general counsel and vice president of market strategy, also cited uncertainty surrounding the implementation of the UFLPA as a major source of volatility for the sector.

“We're starting to see some small volumes being cleared from detention, which is a positive development, but still large volumes detained, and uncertainty on the process,” Smirnow said. “What's it going to take for companies to establish that their imports are free of inputs from Xinjiang? We think the companies will be able to establish that, but they need clear guidance from Customs.

Smirnow believes that the UFLPA, plus the ongoing Commerce investigation and the resulting pivot to domestic manufacturing, will be “hangover effects through 2023.”

However, he thinks the market will improve from 2022.

“And then, as more domestic manufacturing comes online in 2024, 2025, we hope that many of these supply chain challenges are going to be reduced, then we certainly expect the deployment to start accelerating at that time,” he said.

The 2022 Q4 U.S. Solar Market Insight report that Wood Mackenzie and SEIA released in December said that the groups also anticipate “downside risk” next year as a result of Commerce’s preliminary determination that several companies were violating tariffs, though Commerce won’t release its final determination in the case until May 1.

Martinez said she expects that Biden’s executive order will stave off significant impacts of the tariff investigation through 2023 and 2024, but added that she has concerns about the balance of supply and demand after the moratorium ends.

Reconfigurations of companies’ strategy are imminent

Robb Jetty, the chief operating officer at Distributed Solar Development, or DSD, said that his company and the industry overall have experienced “significant headwinds with the policy volatility in the United States as it relates to the import of solar modules, which was pretty tumultuous for us.”

“Things changed rather dramatically, and caused a period of time where being able to import modules into the U.S. has a high degree of risk and uncertainty associated with it,” Jetty said, though he echoed Martinez in saying that the effects were mitigated by the White House’s moratorium on new tariffs.

“But the global supply chain generally has been a challenge since the latter part of 2020, when inventory started to dwindle globally of the various components that make up the broader products within the overall mix of equipment that we use,” Jetty said. “And that's continued.”

Jetty said that supply chain disruptions like labor shortages in shipping and trucking have led DSD and other companies to move away from a just-in-time procurement strategy and instead make bulk purchases of components “to create both price certainty and certainty of availability of supply.”

Previously, the industry had applied this strategy to solar modules specifically, in order to take advantage of a “safe harbor” investment tax credit provision for renewable energy projects and secure the tax credit of a specific year by investing enough money in materials for the project to qualify as having begun construction in that year.

“Now we've basically taken that kind of strategy and applied it to a lot of the other major system components across what's needed for solar projects generally,” Jetty said. “We’ve placed bulk purchase orders and made deposits for rooftop racking through the entirety of the mobilizations that I'll plan to mobilize on through 2023.”

Jetty said that for two hundred rooftop projects that DSD has underway, the company has already paid a deposit to secure racking for all of them in order to guarantee that those orders will be fulfilled.

“It gives me certainty of supply and locks me in at a price in that time period to protect us from the volatility in the supply chain that we've been experiencing here in the last couple of years,” he said.

Though Jetty thinks the IRA provides the solar industry with a “significant tailwind” to combat the headwinds it’s experiencing, he believes that it will take “a number of years” for the supply chain to normalize. 

“This global supply chain volatility that we were impacted by isn't going to go away anytime soon,” he said. “We're dealing with the longest lead times on electrical component availability that we've ever experienced as an industry.”

Jetty also believes that the IRA will fuel demand for growth in the solar industry that will be met with a dearth of supply after the moratorium on new tariffs runs out in June 2024, and said that it is “literally impossible” for the U.S. to build out its domestic supply chain enough over the next eighteen months to meet that demand. 

“There's no way that manufacturing capacity would be able to respond in that time period to meet the demands of projects that developers are going to want to bring online in that time period,” Jetty said.

He pointed out that First Solar, the largest U.S. manufacturer of photovoltaic solar modules, is already sold out of modules through 2024.

“There's just no way that there's enough capacity, or that enough capacity will come online when manufactured domestically, to meet the gigawatts of demand that are forecasted to come online as a result of the IRA,” Jetty said. “We're going to continue to rely on foreign manufacturing for years.”

Smirnow also said that time is the biggest barrier to building up the domestic supply chain, including the time it takes for manufacturers to choose a state and a specific location for a new facility. As a result of this current uncertainty, he anticipates that 2023 will see companies reconfiguring their supply chains, altering their production processes, and negotiating pricing, with the dust settling in 2024.

“It’s a timing factor,” Smirnow said. “We are going to see a robust across-the-board solar manufacturing base in the United States because of the IRA, we are certain of that. It's just a question of, how long is it going to take to get there?”

The IRA provides a 30% solar investment tax credit through 2025, while before the law it was at 26% and scheduled to drop to 22% in 2023. Projects that certify all steel, iron and manufactured product components were produced in the U.S. can qualify for an additional 10% tax credit, as can projects located in or near a community that has historically relied on the fossil fuel industry.

As a result, solar is receiving a massive boost in appeal as an industry at the same time that the supply chain for solar components is becoming more uncertain.

Marlene Motyka, a principal at Deloitte and the firm’s U.S. renewable energy leader, said that while many solar projects were delayed in 2022 she saw few being outright canceled and no real dampening of demand. 

The extension of increased tax credits for both wind and solar supports growth, Motyka said. “Some of those projections now suggest that the law would spur 525 to maybe 550 GW of new utility-scale clean power by 2030. And that was up from what I believe was an originally projected number of 300 GW.”

Domestic optimism

Becca Jones-Albertus, director of the Department of Energy’s Solar Energy Technologies Office, is more optimistic about the industry’s ability to build out domestic manufacturing and expects a “very robust” domestic supply chain to be in place by 2025.

“It is an aggressive timeline to have manufacturing capacity up and ready by June of 2024,” Jones-Albertus said. “But I think it's too early to say whether or not the industry can get there.”

She added that though Commerce’s preliminary determination found evidence that four of the companies it investigated were circumventing tariffs, it did not find evidence against the other four, and the companies that were found circumventing “also have that timeframe to reconfigure their supply chains.”

Jones-Albertus believes that the passage of the IRA sets up the U.S. solar industry for successful domestic expansion, partially due to the nature of the current barriers to domestic solar manufacturing.

The U.S. has plenty of quartz, she said, which is the material used to make polysilicon, a key component of photovoltaic solar cells. The challenges for domestic expansion have been economic ones like the U.S.’s higher labor costs and more stringent environmental regulations for manufacturing facilities.

“That's why the manufacturing production tax credits in the Inflation Reduction Act can be so powerful, because they are directed at different supply chain segments, and they provide tax credits that can directly offset those higher costs of manufacturing in the U.S. and make U.S. manufacturing competitive with imported products,” she said.

Jones-Albertus said that between the passage of the IRA and December 16, when she spoke to Utility Dive, 17 new solar manufacturing facilities representing more than 75 GW of proposed capacity had been announced.

Hanwha Q Cells, the second-largest domestic solar manufacturer, announced on Jan. 11 that it will invest more than $2.5 billion building up the domestic supply chain, opening a second plant in Georgia and raising its total annual solar panel production capacity to 8.4 GW by 2024.

Martinez said that she believes the IRA provided the boost necessary to jumpstart the domestic solar supply chain, as producing solar components in the U.S. is more expensive to the point of rendering production almost entirely non-competitive without subsidies.

However, she cited outlying uncertainty about the impact of the IRA, and said that it’s too early to fully estimate the law’s impact when it comes to total energy generation or domestic manufacturing buildout. 

“I think the biggest thing to look for in 2023 is what other guidance the IRS provides on the implementation of all the tax credits in the IRA, and after that, we'll have a better view of exactly how that is going to impact total renewable buildout in the U.S.,” Martinez said.

Nuclear energy is increasingly getting another look by federal and state officials seeking to cut greenhouse gas emissions and bolster energy security.

The industry, which is struggling to grow in the U.S., could increase generating capacity in 2023 if Southern Company’s Vogtle units 3 and 4 come online as expected.

A federal zero-emission nuclear power production credit, state legislation ending bans on nuclear plant construction and state policies easing development of small modular reactors, defined by the International Atomic Energy Agency as advanced nuclear reactors with a capacity of up to 300 MW, are among the recent developments spurring renewed interest in the industry.   

Detractors cite safety risks, rising costs and other concerns. Critics also caution that a significant increase in nuclear generation in the U.S. is years, maybe even decades, away.

The International Atomic Energy Agency expects global nuclear capacity, in a high-case scenario, to more than double to 873 electrical GW net by 2050, compared to 390 GW now. That would be 81 GW more than last year’s projection. In a low-case scenario, nuclear generating capacity remains essentially flat in 2050 compared to 2021.

In the U.S., however, nuclear electricity generation declined for a second consecutive year in 2021, according to the U.S. Energy Information Administration. Output from nuclear power plants totaled 778 million MWh, or 1.5% less than in 2020. Nuclear’s share of U.S. electricity generation across all sectors in 2021 was similar to its average share in the previous decade: 19%.

As of November, seven units with a net summer capacity of 5,505 MW had retired since 2018, according to the EIA. The agency listed four Entergy plants: Palisades in Michigan; Indian Point 2 and Indian Point 3 in New York; and Pilgrim in Plymouth, Massachusetts. Also retired were two Exelon plants: Three Mile Island in Pennsylvania and Oyster Creek in New Jersey and NextEra Energy’s Duane Arnold facility in Iowa.

In addition, California’s Diablo Canyon, which is slated to retire a unit in 2024 and another in 2025, could remain open with funding conditionally approved by the U.S. Department of Energy.

Federal money, state policies induce nuclear investment

The Inflation Reduction Act, which commits $369 billion for climate efforts, includes a zero-emission nuclear power production credit. It provides up to $15 a MWh for electricity produced, assuming labor and wage requirements are met.

The credit will be available for plants in service in 2024 and would extend through 2032, according to the DOE.

However, the fiscal year 2023 omnibus spending measure enacted last month cut funding for the DOE's Office of Nuclear Energy by $182 million from fiscal year 2022, to $1.47 billion. The FY 2023 spending includes $85 million for the Advanced Reactor Demonstration Program, $322 million for fuel cycle research and development, $114 million for accident tolerant fuels and $259 million for reactor research and development. 

Maria Korsnick, president and CEO of the Nuclear Energy Institute, said the $1.7 trillion spending bill includes "robust funding" for public-private partnerships and support for nuclear energy education and research infrastructure. But she said it "fell short" of $2.1 billion needed to bolster the domestic nuclear fuel supply.

Federal spending to provide incentives for nuclear energy development began before Congress and President Joe Biden approved the omnibus spending bill last year.

The $1.2 trillion Infrastructure Investment and Jobs Act that Biden signed into law in November 2021 includes $62 billion for clean energy projects. Spending was directed at advanced nuclear projects, preventing the premature retirement of nuclear plants and considering how nuclear power may produce hydrogen for other energy applications. 

In addition, states are looking to bolster nuclear power. Christine Csizmadia, senior director of state government affairs and advocacy at the NEI, said several states are broadening policies that aim to advance nuclear energy. Legislation supports studies of small modular reactors, providing tax incentives for nuclear power plant construction and ending moratoriums on new plants.

"This is a brand new time," she said. “We've never deployed new technology in the market like this."

Mining states turn to nuclear energy as coal declines

West Virginia and Wyoming, two coal-extracting states, are moving toward nuclear power, drawn by the economic impact of coal's decline, Csizmadia said.

The West Virginia Legislature and Gov. Jim Justice, R, in January 2022 repealed a ban on nuclear power plant production that state Delegate Brandon Steele, R, said dated to the 1990s.

"Looking at the growth of nuclear technology safety and the track record of the industry, a lot of people thought it was good to get rid of it," he said of the moratorium.

Viewing the changing energy landscape, state lawmakers realize diverse energy production is good for West Virginia, with nuclear power complementing coal, Steele said.

For example, by incorporating nuclear power in its energy portfolio, West Virginia can compete in markets that require a portion of carbon-neutral electricity production, he said. Nuclear power is not currently generated in the state and it will likely be years before a nuclear power plant is built in West Virginia, Steele said.

Lawmakers acted to "create an environment" to attract nuclear power producers, he said.

"We're setting them on the course now and hand the baton off to future generations," Steele said.

The U.S. is not a ‘great market’ for new nuclear plants

Policies giving nuclear energy a boost have their limits. 

Bret Kugelmass, CEO of Last Energy a manufacturer of what it calls micro modular reactors that generate about 20 MW, is active in European markets. It’s announced 10 projects in Poland, two in Romania and has “some activity” in the U.K. that has yet to be publicly detailed, he said in an interview.

Europeans, he said, generally embrace nuclear power and “realize how important it is for them," particularly as Russia uses its natural gas supplies to punish Western European countries for their support of Ukraine. In contrast, U.S. markets are “crazy complicated” because of the network of grids and varying state policies, he said.

“It’s just not a great market for new nuclear, to be honest," Kugelmass said.

Developing and deploying advanced nuclear reactors would add to or replace reactors, nearly all of which will reach the end of their licenses by 2050. Developers say new reactors will improve economic competitiveness, reduce environmental impacts and cut waste generation while boosting safety.

Next nuclear technology is seen as a decade away

Avi Brenmiller, president and CEO of Brenmiller Energy, a thermal energy storage manufacturer, said the next nuclear technology is 10 years away "to be safe and clean, and I don't see the move yet." 

"People are speaking more about it right now, but I don't see any real action" that he defined as "movement with major energy companies approaching us for this kind of solution."

"We don't see the action in nuclear power plants yet."

In Wyoming, TerraPower is planning to build a 345-MW nuclear reactor demonstration project at a coal plant set to retire in 2025. 

Wyoming state Rep. Donald Burkhart, R, said developers are looking to build and operate the plant in seven years, "lightning speed for a nuclear power plant."

He said he worked to advance legislation intended to "correct confusion and difficulties" between federal regulations set by the Nuclear Regulatory Commission and state laws authorizing nuclear power plant siting. The legislature removed hurdles to avoid duplication of state and NRC rules. "We streamlined the process a lot," he said.

For example, Wyoming accepted NRC rules on nuclear power plant siting and safety, Burkhart said.

The Connecticut legislature and Gov. Ned Lamont, D, enacted a law last year exempting the Millstone nuclear power plant from a moratorium on construction. If nuclear power expands its footprint in Connecticut, the "logical place to start it is at an existing site," said state Sen. Norm Needleman, D, co-chairman of the legislature's Energy and Technology Committee.

He said he "can't even fathom" how New England will fix its winter reliability problems by building out natural gas.

Lawmakers and the Lamont administration want Dominion Energy, Millstone's owner, to make investments at the plant and "keep a carbon-free baseload,” Needleman said.

"I want a reliable grid," he said. "I don't want to take anything for granted. I want a backup on a backup."

The Connecticut Department of Energy and Environmental Protection took steps in 2019 to ensure Millstone would remain online for at least a decade, selecting a 10-year bid for power from the plant as part of a solicitation for carbon-free generation resources. 

When Millstone is expected to retire at the expiration of the contract in 2029, the region will need to fill the zero-carbon electricity demand left behind, state officials said. Without nuclear power, the state’s 2020 Integrated Resource Plan released in October 2021 assumes an additional high-voltage direct current cable line importing more hydroelectricity from Canada.

Political consensus on nuclear power may be emerging

Cale Jaffe, director of the Environmental Law and Community Engagement Clinic at the University of Virginia School of Law, said at a Dec. 15 forum discussing SMRs in Virginia's coal fields, that a political consensus is forming in favor of nuclear power "in a way that we haven't seen" in years.

Gov. Glenn Youngkin, R, has submitted a 2022 energy plan, most of which would require approval by state lawmakers.

Jaffe said the governor’s plan would make Virginia, in 10 years, home to the first commercial-scale SMR in the U.S. The Biden administration, too, has established a policy to “strengthen domestic nuclear development and deployment.”

Since 1997, when polling showed Democrats and Republicans equally concerned about climate change, a "massive polarization gap" has opened between the two parties, Jaffe said.

SMRs "have the potential to reduce political polarization, he said, "moving away from talking about problems to talking about solutions."

"I'd be skeptical about fighting an SMR, which right now is looking to retire aging coal fleets," he said. "It expands the map of folks who are on our team, on our coalition, working on climate change solutions."

Critics say nuclear power is potentially dangerous and that its promoters are overly optimistic about construction schedules. 

Edwin Lyman, director of nuclear power safety at the Union of Concerned Scientists, said during the forum that nuclear power has the potential for a "catastrophic accident that could lead to large scale radiological contamination of the environment, massive economic damages and the potential for significant human health impacts."

The industry cannot easily estimate the risks associated with storms, earthquakes and tidal waves as climate change makes weather more unpredictable, he said.

Even if a reactor is safe against accidents, it's vulnerable to terrorists or military attacks as in Ukraine at the hands of Russia, Lyman said.

He questioned whether SMRs are easier to cool and are less radioactive than light water reactors "and therefore we don't have to worry about it as much."

"These claims are almost entirely misleading as you start looking at the facts," he said.

Developers looking to reduce capital expenses and operating costs are cutting "rigorous requirements" for sites in or near populated urban centers or towns, Lyman said.

David Schlissel, director of resource planning analysis at the Institute for Energy Economics and Financial Analysis, cited cost overruns and schedule delays in the nuclear power industry.

"We don't need a transition from coal to nuclear," he said at the Dec. 15 forum. "We're already pretty far along a transition from coal and natural gas to renewables."

But state, federal and corporate actions are helping to boost the prospects for nuclear in the U.S.

Csizmadia of the Nuclear Energy Institute said lawmakers in as many as 19 states may introduce legislation this year to advance nuclear power.

“Legislators are not done. They’re not satisfied,” she said. “They’re constantly asking what more can we do to incentivize the state for nuclear power.”

Work to build tomorrow's distribution system will accelerate in 2023 and bring three new insights about distributed energy resources, or DER, despite challenges, analysts say.

Uncertainties remain about customer DER adoption and the need for distribution system control technologies, power system stakeholders agreed. But the numbers leave no doubt about fast-rising penetrations of electric vehicles, charging infrastructure and customer-owned solar, batteries and heat pumps, along with smart thermostats, appliances and other devices.

Electric utilities expect customers to “deploy and explore DER for electrification in 2023 across many different technologies and end uses,” said Patricia Taylor, director of Policy Research and Analysis at the American Public Power Association. And the importance of DER “load flexibility” value is growing “as intermittent renewables replace retiring traditional baseload resources,” she added.

Even when some state regulators reduced compensation for DER like residential solar in 2022, they added opportunities for DER like solar-plus-storage in 2023 that offer reliability and resilience, stakeholders noted.

“Reliability is a concern virtually everywhere, making once risk-averse regulators, utilities and other stakeholders more open-minded” about DER, said Generac VP, Markets and Programs, Josh Keeling, a former Portland General Electric executive. That urgency “will lead to important decisions in 2023 to advance DER,” he added.

To meet federal and state electrification and decarbonization policies, 2023 will see major advances for DER aggregations in wholesale markets and at the distribution system level, utility representatives, DER advocates and policy analysts agreed. And 2023 may also see new community and consumer stakeholders take a more central role in driving growth, some experts said.

The data says growth

Despite supply chain constraints, residential solar’s “historic” Q3 2022 1.57 GWdc growth in the U.S. was 43% higher than Q3 2021, according to the Q4 2022 Solar Market Insight report from Wood Mackenzie and the Solar Energy Industries Association. And 2022’s estimated 5.8 GWdc installed capacity is expected to reach an estimated 6.2 GWdc in 2023 and 7.5 GWdc in 2027, the report projected.

Uncertainties about Inflation Reduction Act tax credits and adders could limit growth, Wood Mackenzie cautioned. But “the fundamentals for residential solar are strong” because “customers crave energy independence and savings” to offset rising retail electricity rates, it added.

Residential energy storage’s 161 MW/400 MWh of new capacity in the U.S. in Q3 2022 was also a record, significantly exceeding Q3 2021’s 111 MW/258 MWh, The Q4 2022 Energy Storage Monitor from Wood Mackenzie and the American Clean Power Association reported. Annual residential energy storage capacity, estimated at under 1.5 GW for 2022, is likely to reach over 2.2 GW in 2026, it added.

Sales of U.S. electric heat pumps will also grow steadily, according to American Heating and Refrigeration Institute data. The over 13 million electric heat pumps in the U.S. in 2021, which includes geothermal heat pumps, were projected to reach almost 14 million in 2022 and 14.3 million in 2023, according to the Energy Information Administration March 3, 2022, Annual Energy Outlook.

An estimated 15% increase in North America’s energy efficiency investments from 2015 to 2022 reduced U.S. energy consumption 30% in 2021 and should support continued reductions, according to a Dec. 20 industry report.

April 2022 data from the Edison Foundation’s Institute for Electric Innovation projected there would be over 124 million smart meters installed in 78% of U.S. households by the end of 2022. Sustained market growth is projected to reach nearly $3.3 billion in revenue in 2028, a February 2022 Fortune Business Insights report forecast.

More than 2.7 million electric vehicles had been sold in the U.S. through June 2022, the Natural Resources Defense Council reported in October. And EVs’ 1% share of the U.S. light-duty vehicle market is growing, with EV’s H1 2022 sales growing 41% from H1 2021 while total H1 light-duty vehicle sales fell 22%, a Sept. 13, 2022, Alliance for Automotive Innovation report said.

The U.S. EV market’s $28.24 billion value in 2021 will reach $137.43 billion in 2028, another February 2022 Fortune Business Insights report forecast. But new public charger installations are not keeping up with the growth of EVs, sources agreed.

To rectify the estimated 33 EVs per outlet ratio found in mid-2022, regulators are streamlining charger deployment approvals for utilities and for the federally funded National Electric Vehicle Infrastructure Program, the North Carolina Clean Energy Technology Center, or NCCETC, November 2022 EV policy update reported.

Across all DER technologies, new policies to accelerate deployments are expected in 2023, added NCCETC Associate Director of Policy and Markets Autumn Proudlove and others monitoring state regulatory activity.

Regulatory review

Throughout 2022, policymakers considered over 600 transportation electrification-related policy actions like financial incentives, market development and regulation, NCCETC reported.

There were also nearly 600 policy initiatives impacting distribution system modernization across 2022, NCCETC’s October 2022 Q3 grid modernization policy update showed. Actions included utility business model reforms, smart grid and smart meter deployment, distribution system planning, energy storage and time-varying rates, NCCETC reported.

And in Q3 2022 alone, 40 states and D.C. were working on policy actions about net energy metering, or NEM, or other DER compensation, rate and billing structures, the NCCETC October solar policy update added.

Policies supporting access to DER for disadvantaged communities also grew across all technology types, NCCETC’s Proudlove said. 

Another “general trend” that could see more regulatory approvals in 2023 is time-of-use, or TOU, rates with added low-priced off-peak periods, Proudlove said. Such TOU rates, and innovative demand charge structures that prevent bill spikes at public or fast chargers, can add to the savings and appeal of driving electric, she added.

Broader reforms like Maine’s beneficial electrification rates may become more common in 2023, Proudlove said. Rather than simple TOU rate changes, Maine carefully revised demand charges for EV drivers and battery storage owners to improve the economics and reduced heat pump rates to encourage adoption, she said.

Three grid modernization trends — performance-based regulation, rate designs for energy storage, and all-source competitive procurements by utilities — could be advanced by a wide range of new regulatory initiatives in 2023, including approval of performance incentives in Illinois and requirements for competitive bidding in New Mexico, NCCETC said.

Finally, 2023 will advance California’s work to bring distributed resources into the marketplace in its CalFUSE and High DER proceedings, NCCETC and stakeholders agreed. It will have minimal impact on near-term market activity, but the regulatory dialogue can advance understanding of how DER’s demand flexibility, supported by real-time pricing and market architectures, can participate and benefit system reliability and customers, they said.

California’s Dec. 15 decision on NEM reduced customers’ compensation for exported generation and could contract the state’s nation-leading solar market in 2023, Wood Mackenzie reported. 

But the decision’s state and national influence in 2023 will not necessarily be entirely negative because it also expanded DER’s reliability value when paired with distributed storage, some stakeholders said. 

North and South Carolina may have successor tariffs to retail rate NEM in 2023 that increase compensation for DER that supports system needs, Proudlove said. Other states are adding compensation for DER like battery storage in demand response programs that provide system resilience and reduce costs, she added.

Finally, Texas regulators in January approved the Aggregate Distributed Energy Resource Pilot Project to evaluate DER aggregations in the state’s wholesale markets, said Proudlove. Other state planning is similarly “getting out ahead” of the Federal Energy Regulatory Commission Order 2222 effort to use DER in wholesale markets, Proudlove said.

The wholesale market advance

Regional transmission organizations and independent system operators were ordered in September 2020 “to remove barriers to the participation of DER in the capacity, energy and ancillary service markets,” by FERC Order 2222.

When and if the order will enable DER aggregations to compete with traditional energy, capacity and ancillary services market resources are likely to become clearer in 2023, FERC watchers agreed.

Rules for wholesale market integration should evolve with DER technologies’ scale and types of services, a January 2022 report by GridLab and Advanced Energy Economy, or AEE, analysts said. Key issues will be interconnection procedures, cost and benefit assessments, and management and coordination of dual participation in wholesale and retail markets, the report said.

Compliance filings from system operators on implementing Order 2222 were due July 19, 2021, but only the California ISO and the New York ISO submitted them, said AEE Managing Director Caitlin Marquis. FERC’s ruling on extension requests from PJM, ISO-New England, the Midcontinent ISO and Southwest Power Pool may come in 2023, she added.

The recently approved NYISO market design submitted in 2019 will likely allow DER and DER aggregations to participate in NYISO energy, capacity and ancillary services markets in 2023, Foley Hoag Counsel Devlyn Tedesco said.

“Multi-state organizations have more challenges designing compliance plans because each state has its own regulation,” Marquis acknowledged. Bidding across broad geographic regions and dual participation in both wholesale markets and retail utility programs are particularly complicated, making implementation of Order 2222 by 2026 a “reasonable” expectation, she said.

Order 2222 may be the path to DER growth through federal regulation, but more significant DER integration may be possible through state regulatory action at the distribution system level, some experts said.

Sunrun’s 2022 participation in the ISO-NE capacity market was possible because of “pre-Order 2222 bidding pathways,” said Sunrun Policy Director Chris Rauscher. But Order 2222 “will not open up new opportunities for Sunrun because minimum asset sizes and market participation requirements do not suit residential DER” operational patterns, he said.

Customer demand for DER cost savings, reliability and resilience is, however, “a clear signal to regulators and policymakers to find ways to integrate them,” Marquis, Tedesco and Rauscher agreed.

The distribution system advance

DER aggregated in utility-led “bring your own device,” or BYOD, programs, and virtual power plants, or VPPs, “have become proven grid resources,” said Sunrun’s Rauscher. “Utilities with reliability challenges are coming to DER providers for solutions,” he added.  

System integration of the reliability and resilience potentials of BYOD programs and VPPs may be advanced in 2023 more by state regulation than by FERC Order 2222, DER providers and utility representatives said.

A Sunrun VPP announced in November for 2023 operation by PREPA, Puerto Rico's dominant power provider, will function with nearly the reliability of “a base load resource, by discharging solar-charged batteries an estimated 260 days a year,” said Rauscher. And because VPPs are on customers’ roofs and in their garages, they can be built “without interconnection queue, siting and permitting, or political opposition issues,” he added.

In response to an anticipated need of more than 3 GW of DER through 2045, Puget Sound Energy, or PSE, is developing a “platform” of “sophisticated software applications” to manage an “evolving” VPP, said PSE Manager of Strategic Initiatives, Elaine Markham. 

PSE’s VPP platform will begin with integrating BYOD-like demand response programs and later expand to battery energy storage and multi-DER VPP-like programs, Markham said. Additional aggregators and new technologies will be integrated as customers acquire DER and the technologies evolve, she added.

The amount of system technology needed “depends on the utility and its community’s goals,” APPA’s Taylor said. At public power utilities, “more DER pilots are being done, especially in transportation electrification, and important lessons learned are being shared,” she added.

Dispatch of Sunrun-aggregated East Bay Community Energy's, or EBCE’s, already installed 1,500 solar-plus-storage systems, does not require expensive system technology, said EBCE CEO Nick Chaset, a former California Public Utilities Commission staffer. In 2023, EBCE will expand its VPP and a managed EV charging programs with “a customer-first approach,” he added.

Arizona Public Service, or APS, plans to expand both a BYOD program for smart thermostats, and a multiple DER aggregator residential battery VPP in 2023, APS Spokesperson Yessica Del Rincon said. And Sacramento Municipal Utility District, or SMUD, has similar VPP plans and will expand an EV-managed charging pilot with GM, Ford and Volkswagen this year, SMUD Spokesperson Gamaliel Ortiz said.

Many 2023 DER aggregation efforts also include an equity goal.

Avista Utilities will initiate a DOE-supported Connected Communities project in 2023 to “equitably” integrate utility-dispatched VPPs from grid-connected efficient buildings, Avista spokesperson Casey Fielder said. And a public power utilities Energy Transition Community working group is working to advance both DER integration and equity, APPA’s Taylor said.

That focus on equity is leading to the emergence of new voices in power system regulation and planning. 

The new voices advance

Greater engagement by local leaders in regulatory and legislative decisions on DER will be more common in 2023, analysts said. 

“The utilities, the distribution system, and its rules should serve the needs of the community, not the other way around,” California Alliance for Community Energy Coordinator Al Weinrub told state agency and utility representatives in a Gridworks-led California High DER Future workshop last June.

Local government, community and tribal leaders “detailed engagement on energy and climate issues could lead a California energy policy evolution,” Gridworks Executive Director Matthew Tisdale said. “Thinking globally and acting locally is new to some policymakers, but hearing local leaders can allow them to see challenges from new angles,” he added.

A “national initiative” with input from the full range of stakeholders is needed to build a framework for DER integration, according to a recent DER sector analysis. “DER technologies are reaching maturity just as the need for reliability becomes urgent, but balancing local and central control and interests remains an unanswered question,” added Generac’s Keeling, who co-authored the analysis.

“Utilities favor central control, but DER technologies are coming so quickly that some aggregation seems necessary” to protect distribution system operations, Keeling added. Municipal, community and local leaders can be critical in resolving the unanswered question because they have a different perspective than regulators or utility leaders, and “that can lead to new approaches,” he said.

Electric vehicles made up more than 5% of new vehicle sales in the United States last year, and experts say rapid growth in transportation electrification is likely to continue. Federal funds will help to develop a national charging network and incentivize consumers to purchase from dozens of new models that automakers are bringing to market.

EVs as a percent of new vehicle sales have risen from around 2% in 2020 to more than 6% in the third quarter of 2022.

“There's an incredible amount of opportunity and momentum,” Electrification Coalition Executive Director Ben Prochazka said. The group advocates for policies to speed the adoption of plug-in vehicles, and sees the bipartisan infrastructure law of 2021 and last year’s Inflation Reduction Act as key accelerators in the industry.

Among other investments, the infrastructure law provided $7.5 billion for a national network of 500,000 electric vehicle chargers while the IRA extended federal tax credits for vehicle purchases.

It appears EVs “are on the verge of a tipping point,” Prochazka said. “But I do think we have challenges,” including working out the details of how federal incentives will be structured.

“The transition takes time,” said Joe Britton, founder and former executive director of the Zero Emission Transportation Association. The group’s members include utilities and charging companies, Tesla, Lucid, Sunrun and other technology companies.

EV sales in the U.S. could reach 10% this year, he said, though Britton doesn’t expect sales to continue growing at such a rapid pace.    

President Joe Biden wants half of all new passenger vehicle sales in the U.S. to be electric vehicles by 2030. Experts say the goal is aggressive and will hinge on the easing of constrained supply chains and how federal incentives are implemented. 

Stephen Engblom, senior managing director of commercial real estate firm CBRE, says he is “optimistic” the president’s goal can be achieved if challenges in locating charging stations are met and the grid can support the new demand. “You have to have the energy and you have to have the real estate,” he said.

Building out the EV charging network “is actually a real estate challenge,” Engblom said, requiring automotive and charging companies, utilities and commercial real estate owners, to work together. “I think, inherently, real estate will be the biggest challenge, and I would say that that's where I would watch over the next year as these partnerships work themselves out.”

In New York City, electric utility Consolidated Edison has seen “tremendous growth, just in the last several months,” said Director of E-mobility & Demonstrations Raghusimha Sudhakara.

The transition to electric vehicles is “something we think about every day,” Sudhakara said. “So far it’s been very smooth,” with ConEd able to meet every new service request for electric chargers. But the utility is also looking to proactively build out areas of its grid where there are large fleets that may want to electrify.

The Edison Electric Institute, which represents investor-owned utilities, expects there will be 26.4 million EVs on U.S. roads in 2030, with annual sales of nearly 5.6 million vehicles in 2030, or about 32% of the light-duty total. 

“In the last year we doubled sales, from 3% to 6%,” Britton said. “Obviously I don't know that we can keep doubling every year, but we're going to see a ton of growth. ... I think [in 2023] we’ll probably sell 1.5 million units.”

Industry observers say keys to accelerating EV adoption in the next year include the details of vehicle tax credit implementation, the rollout of $5 billion in funds for the president’s National Electric Vehicle Infrastructure formula program, and addressing potential utility bottlenecks in electrifying charging stations. 

Vehicle credit rules

The Inflation Reduction Act contained $369 billion for clean energy investments, including reviving tax credits for EVs. But the new tax credit is not simple: It is split into portions, and qualifying depends on where the vehicle was assembled and what percentage of critical minerals used were extracted or processed in the U.S.

“I think the changes to the tax credit right now are probably challenging for the average consumer to figure out and understand what vehicles are eligible,” Prochazka said. “With any new policy like this, that has nuance that consumers have to try and sift through, it’s going to take a little bit of time.”

Some of that uncertainty surrounds which vehicles qualify for credits, which depends on mineral content and whether it meets domestic assembly requirements.

The U.S. Department of the Treasury and Internal Revenue Service issued some clarifying information in December for new vehicle purchases, and Prochazka said proposed guidance on the new sourcing provisions for the clean vehicles credit is expected in March, along with a notice of proposed rulemaking.

The implementation details will be “a challenge for everybody,” Britton said. “We're all going to be struggling, in the short term, to figure out who's eligible, are they attainable standards and what benchmarks do we use. There's a ton of implementation that we're going to be working on.”

Charging network funds roll out 

Another major factor this year will be the disbursement of billions of dollars to states for the development of a national charging network.

To access the first $5 billion, states, the District of Columbia and Puerto Rico were required to file charging plans and the Federal Highway Administration announced in September that all have been approved. 

The first tranche of funding has been rolled out to states, Prochazka said, setting the stage for developers to propose charging solutions. States are already in the process of creating the requests for proposals to develop new stations “so that they can get the companies ready and contracted to be able to build out the infrastructure network,” he said.

“I think that's going to be also really important for consumers, to start to see that infrastructure developing and the stories associated with that infrastructure developing,” Prochazka said. ”But it's not going to happen overnight. It's going to take a lot of effort.”

“How quickly the states move, I think some of that will be determined by their sophistication and experience doing this. But with this bipartisan infrastructure bill money, we’re probably building charging going gangbusters for the next three to five years,” said Britton. 

Issues in utility connections

Beyond vehicle sales and charger development, is the utility interconnection — and here delays are already being witnessed.

“With network upgrade queues backing up into the 2030s,” utilities may look to solar and energy storage options to serve charging stations in some areas, Jeffrey Douglass, markets and research manager at Invinity Energy Systems, said in an email. The company is a developer of utility-scale storage.

Managing the power loads associated with transportation electrification will help in “maintaining grid stability and accelerating the world’s transition to net zero,” he said.

Electricity demand from electric vehicle adoption is unlikely to lead to generation or capacity constraints, said Britton, though substation upgrades may be required in some areas.

“Some of the biggest limitations in the market will be limits on the utility grids,” said CBRE’s Engblom. “Upgrading the grid to be able to handle all of this new high-speed charging is going to be a big challenge.”

It takes charging company EVgo about 4-8 weeks to construct a new charging station, CEO Cathy Zoi said during the company’s third quarter earnings call in November. But the end-to-end time, from station conception to energizing stalls, now takes about 18 months, she said. That time had been about 12 months, but delays on the utility side are stretching development times.

There is a “utility work backlog associated with transformer shortages,” Zoi said. “When we're building the configurations that we're building now, which are ultrafast 350-kW chargers with more stalls, that almost always requires a transformer upgrade.”

The utility sector warned federal lawmakers last year that a shortage of distribution system transformers is depleting replacement equipment stockpiles and delaying or canceling some electrification projects.

“Persistent utility labor shortages and transformer supply chain constraints exacerbate utility work backlogs at the front and back end of the charger development process,” Zoi said. “We expect utility-related delays will continue to be an issue as power companies gear up for transportation electrification and work to make power systems resilient to the effects of climate change.”

There were about 2,300 level 2 chargers and 140 DC Fast Chargers installed in Consolidated Edison’s territory at the end of last year, said Sudhakara. The utility expects its Power Ready make-ready program to help bolster those numbers quickly, reaching 18,500 level 2 chargers and more than 450 DCFC by 2025. To meet the state’s EV adoption goals, the utility expects 400,000 chargers in its territory by 2035.

“With the current growth we are experiencing, we’re providing service relatively smoothly,” he said. “But it would be helpful to work out a construct where we reinforce the grid, build out areas where there are high levels of fleets.”

ConEd’s queue of chargers requesting service already includes more than 1,000 DCFCs, said Sudhakara.

“The timing for utilities to meet the demand is challenging,” Prochazka said, in particular for utilities that may not have preauthorizations from regulators for necessary system buildouts. Those types of approvals, along with streamlined permitting processes, can help utilities to “clear the deck a little faster,” he said.