The definitive annual survey of North American utilities reveals widespread acceptance of clean energy, overwhelming support for carbon pricing, a nearly unanimous rejection of coal, and clear desire for stable policy – unfortunate news for the Trump Administration’s energy agenda.
Utility Dive’s 2018 State of the Electric Utility (SEU) survey shows that utility professionals are bullish on renewable energy, bearish on coal-fired generation, and want federal decarbonization policy by wide margins.
In an industry desirous of stable policy, the past year’s lurch toward deregulation has thrown utilities for a loop: Policy uncertainty is the industry’s biggest concern, more than tripling from 2016 to 2018.
Promoting coal’s rebirth and repealing emissions regulations may sound good on the campaign trail, but they contradict what works for utilities planning the future of electricity service and making investment decisions based on economics.
Utilities Oppose Clean Power Plan Repeal
Utilities may not always have agreed with the Obama Administration’s policies, but for the most part, they recognized the decarbonization trend and made long-term plans for a low-carbon future. Clean energy prices have fallen much faster than predicted, making the math work to meet pragmatic policy goals and customer demands for cleaner electricity.
“U.S. utilities had a pretty clear trajectory for their power mix – more renewables, gas, and distributed energy resources,” said SEU editor and survey designer Gavin Bade.
Since 2017 that trend has held steady for utilities, even as federal policy has shifted in the opposite direction. The Trump Administration’s showcase energy policy proposals – rolling back the Clean Power Plan (CPP) and promoting coal’s resurgence – have not gained traction among the utility industry.
“For the most part, those are distractions, because the absence of federal emissions regulation still doesn’t change the underlying economics of wind, solar, and gas,” continued Bade. “The White House hasn’t done anything that would really change the equation there, and efforts to support coal research aren’t really going to move the needle.”
85% of SEU respondents believe the federal government should pursue some sort of decarbonization policy, up from 75% in the 2017 survey. 38% of respondents support carbon pricing either through cap-and-trade or a carbon tax, 37% of respondents want the existing CPP to be reinstated or strengthened, and 10% want the existing CPP to be scaled back but maintained.
SEU 2018 decarbonization responses
Only 15% of respondents do not want the U.S. government to pursue decarbonization policy. To quote one respondent, “the federal government needs to lead: Set a firm carbon pricing policy, and then let us get on with it.”
DOE’s Coal-Nuclear Subsidy Was A Clunker
And while 68% of respondents consider bulk power system reliability (i.e. making sure the lights stay on) “important” or “very important” in an era of widespread closures of uneconomic coal and nuclear plants, the utility industry opposed the Department of Energy’s (DOE) proposal to keep these generators online.
Only 5% of survey respondents said cost recovery for select plants – exactly what DOE’s proposal would have done – was the best option for regulators and lawmakers to respond to coal and nuclear plant retirements. Quite the contrary, the utility industry favors letting market economics dictate decisions: 30% think uneconomic generation should be allowed to retire under current market rules, while 29% of respondents want new market-based products to value and pay grid resources for reliability and resilience.
SEU 2018 fossil fuel retirements
Clean Power Is The Future, Coal Power Is The Past
The contradiction between utility industry opinion and Trump Administration rhetoric is even more distinct when it comes to the outlook for clean energy compared to coal-fired generation. Nearly every SEU respondent, regardless of which type of utility they work for or where their utility is located, expects clean energy will be a bigger factor in their power mix :
- 92% expect “moderate” or “significant” growth in utility-scale solar
- 91% expect “moderate” or “significant” growth in distributed generation plus storage
- 85% expect “moderate” or “significant” growth in grid-scale energy storage
- 76% expect “moderate” or “significant” growth in utility-scale wind
SEU 2018 power mix responses
And even though Trump promises to bring coal back, utilities say it’s not going to happen anytime soon. 85% of respondents expect coal to decrease “significantly” or “moderately” as a part of their utility’s power mix in the next decade, while only 2% expect any kind of increase.
“This is another aspect of the Trump agenda that I think many utilities just view as a distraction, if they give it that much thought,” said Bade. “ No one’s going to build a new coal plant here in the U.S., so I’m not sure folks at electric utilities (outside coal plant operators themselves, of course) pay much mind to all the rhetoric around the resource.”
Policy uncertainty roils utilities – so what do they want?
These gaps between the low-carbon future utilities expect and are planning for, and the throwback power system Trump wants, makes policy uncertainty the industry’s top concern. 39% of respondents said uncertainty over market conditions and regulations was their single greatest concern about their changing fuel mix. This rose from just 12% in 2016, and was mentioned nearly twice as much the industry’s second-biggest challenge (reliably integrating new resources).
SEU 2018 utility uncertainty
While SEU reveals a disconnect between utilities and the current federal administration, it also shows what would work best for the U.S. power sector, beyond a national carbon pricing policy or support for market-based economic decisions.
Federal infrastructure funding could help quell utility concerns over the cost of transitioning to a clean energy system, particularly on grid modernization, which SEU respondents ranked as the greatest obstacle to the evolution of their utility’s business model. While Trump’s 2017 infrastructure priority list included billions for transmission and energy storage, his 2018 infrastructure plan did not include significant transmission or distribution system funding.
Reversing these funding priorities could help utilities build a better grid. “Grid modernization costs are tremendous and will not likely yield a noticeable difference in power reliability or quality for our customers,” said one SEU respondent. “A lot of our grid modernization involves simply replacing a lot of old infrastructure (poles) with new infrastructure (newer poles with sensors).”
State-level regulators across the country could help utilities spur grid modernization and transition toward a low-carbon future while creating customer benefits by supporting performance-based regulation (PBR). Under PBR, utilities are rewarded for meeting performance metrics defined by regulators instead of being rewarded for capital investments and sales volume.
“Getting out in front of grid modernization proposals that are popping up around the U.S. can be helped by defining what is the larger societal value regulators want to get out of proposals,” said Energy Innovation Vice President Sonia Aggarwal in a webinar discussing SEU results.
A regulatory shift is underway: 81% of SEU respondents say they have either completed, have begun, or want a state-level proceeding to reform utility business and/or revenue models. Consistent policy can help meet utility needs, and 78% of SEU respondents say the most appropriate utility regulatory model is either “predominantly” or “a mix” of performance-based regulation.
Clear, consistent policy is what matters
But beyond federal investments or compensation regulations, the biggest lessons to be learned from SEU 2018 are that clear and consistent policy matters, and that the trend among utilities is toward a low-carbon grid.
“Utilities plan investments with multi-decade lives, so they want to be able to predict what the policy situation will be in the next generation, not just the next administration,” said Bade. “What the bulk of the sector wants is a transparent, gradual policy roadmap to cleaner grid.”
By Silvio Marcacci, Communications Director at Energy Innovation, where he leads all public relations and communications efforts.