The business of renewables in the U.S.
Brendan Pierpont, February 2012
Last week, scores of utility executives, state energy regulators, technology developers and financiers gathered in Scottsdale, Arizona to confront one simple question: What do we need to do to expand the use of renewable energy in the U.S.?
The meeting was the first in a series of events organized by the American Council on Renewable Energy (ACORE), Electric Power Research Institute (EPRI), Climate Policy Initiative (CPI) and other organizations. The events are designed to explore strategies, opportunities, challenges and barriers for expanding the use of renewable energy in the U.S. The event was a rare opportunity for leaders of the utility, regulatory, technology and finance worlds to engage in a frank discussion about a shared challenge.
We heard from utility executives about their interest in and commitment to renewable energy, so long as policy supports it, and they pointed to a range of benefits and challenges from integrating renewable energy sources into their systems. The states demonstrated differences in their level of commitment to renewables, and state regulators presented a wide range of approaches to encourage renewable energy. In particular, they articulated just how difficult it is to balance keeping electricity rates low with realizing the benefits of renewable energy technologies. Technology and business innovators demonstrated the value of a range of technologies and new business models. Financiers expressed optimism about a growing and maturing market, but concern about uncertainty around the future of support policies.
While there were many interesting points and issues that were discussed, there were a few that stood out:
- More efficient use of the electric grid will allow the U.S. to use more renewable energy. Some participants pointed out that while integration of variable renewable energy sources can be a challenge, one of the best solutions to this problem may be to expand the geographic area over which the grid is operated, rather than having to build new power lines. Several panelists attributed the success of the Midwest Independent System Operator (MISO) in integrating wind energy to the vast geographic area covered by one single electricity market planner, operator, and balancing authority. However, there are clear political challenges to integrating disparate grids.
- In areas where fossil fuels are used for most electricity generation and electricity consumers expect very low electricity rates, regulators and utilities face significant political and business barriers to deploying more renewable energy. Utilities and their regulators have historically been tasked with providing inexpensive and reliable electricity supply – and these are tasks that existing business models and regulation excel at. However, renewable energy and other new technologies present a challenge to this model. For example, how does a regulator balance low rates with the benefits of renewable technologies? Or, what does increasing focus on renewable energy, distributed generation, smart grid technology and energy efficiency imply for existing utility investments that may be made obsolete by new policies and technologies?
- The loss of federal incentives will be a short-term setback to the continued growth of renewable energy, though the long-term effects are less than certain. Without federal incentives, market actors will increasingly rely on state-level renewable portfolio standard (RPS) policies to drive deployment and cover the cost of renewable energy. However, cost caps and consumer preferences for low rates may be significant barriers to RPS-driven growth in renewable energy. In states without RPS policies, growth will likely slow down considerably without the incentives, particularly if natural gas prices remain low. Reductions in the costs of renewable energy technologies and new financial structures show some promise for filling the gap left by federal incentives in the mid-to-long term, although these too depend on policy and continued market expansion.
At times, the utilities, regulators, technology developers and financiers appeared to speak the same language. The participants demonstrated a shared commitment to renewable energy, were excited about the prospect of new technologies, and acknowledged that electricity regulation, financing, and business models all needed to change to encourage more renewables. At other points, however, it was noticeable that these worlds collide infrequently, and each group of stakeholders identified different barriers and solutions for renewable energy. It was clear to all that there was great value in bringing these groups together to address the continuing growth of renewable energy – and many in the room voiced their commitment to keeping this important conversation going.
CPI analysis explores a number of these topics, including: