Can Utilities Rise To The Challenges Presented By Decarbonization?

The electricity network is among the greatest inventions ever, ushering in global economic and social progress. Yet, the system faces enormous tests and presents unique challenges to the nation’s 1,600 utilities, which center on decarbonization and electrification. How will power companies cope?

The trend toward carbon neutrality could pay big dividends for utilities. The growth of electric vehicles (EVs) and the demand for renewables are driving change — all amplified by adding energy efficiency and battery storage technologies. While it will generate more revenues, it will also require a capital investment in transmission and distribution. The good news is 70% of the largest U.S. electric and gas utilities have net-zero goals, says S&P Global Market Intelligence.

“The trend toward more sustainability is going to continue,” says Todd Ramey, senior vice president of markets for the Midwest Independent System Operator (MISO), which operates the generation and transmission system in 15 states. “My primary role is to focus on reliability in the power system and operations.”

Ramey, who presented to the United States Energy Association’s virtual press conference where this reporter was a panelist, adds that 15 years ago, MISO oversaw 1,000 megawatts of renewable energy capacity. Today, it manages 5,000 megawatts of solar power and 1,000 megawatts of battery storage.

Electricity is the lifeblood of American commerce, making up 7% of the U.S. economy. Without access to it, society shuts down. But the nation’s infrastructure is inadequate, unable to handle a tidal wave of electric vehicles and wind and solar plants. The country can reduce greenhouse gas emissions by 40% by 2030 from a 2005 baseline with a bit of help from the Inflation Reduction Act — set to kick in $369 billion for 21st-century energy and climate projects.

Will policymakers step up too?

But reliability is taken for granted — until swaths of the country go without power for extended times. Think of the Texas freeze in February 2021. With a shifting energy foundation, experts discuss the roles of distributed energy assets and baseload power that run around the clock. Since last winter, 4,200 nuclear and coal generation megawatts have retired in the nation’s midsection. There is also constrained natural gas pipeline capacity in the Northeast.

“I have members who will spend the next decade exiting from coal,” says Emily Fisher, executive vice president and general counsel for the Edison Electric Institute, at the virtual press event. “That means we are going to be dependent on natural gas, which is flexible. There will be challenges with meeting peak demand until other non-emitting technologies can deploy at scale and at a cost to serve those purposes. So, allowing us to expand the transmission is also key.”

Today, 10,000 power plants, 170,000 miles of high-voltage transmission lines, and nearly 6 million miles of low-voltage distribution lines comprise the bulk power system. It also has more than 15,000 substations. But the U.S. Department of Energy says the grid may need to expand by 60% by 2030 and triple by 2050 to meet clean energy demands.

Distributed energy resources can alleviate some of that stress, meeting 20% of the peak load by 2030, says the Brattle Group. California, for example, plans to get to 60% renewables by 2030 and to 100% by 2045. The state’s independent system operator has called distributed energy resources “absolutely critical” — a way to relieve strain on the network while using clean energy and ensuring reliability.

The Biden administration is steering the country into the green energy economy and potentially toward net zero by 2050. If utilities can rise to the challenge, they will prosper and set an example for other industries. Ameren
AEE
, American Electric
AEP
Power. CenterPoint Energy
CNP
, ConEdison, Duke Energy
DUK
, and National Grid are among the utilities with net-zero targets.

The ambition is suitable for renewable energy, which grew 250,000 megawatts over the last decade. And more clean energy plants are coming with additional EVs, which could comprise 50% of all new sales by 2030 as nearly every carmaker strives to meet global climate standards. The decreased usage of fossil fuels means increased consumption of electricity, which could skyrocket from 20% to 60% by 2050. But that will require an expansion of the central transmission system — not to mention the addition of new onsite generation and advanced energy storage.

Is coal still relevant?

In 2021, coal, natural gas, and petroleum generated about 61% of U.S. utility-scale electricity generation. Nuclear energy fueled 19% and renewable sources ranging from hydropower to geothermal to wind and solar made up 20%. Wind energy’s U.S. share grew from 0.2% in 1990 to about 12% in 2021. Meanwhile, solar energy’s share was about 2.8% in 2021, up from less than 0.1% in 1990.

“We are seeing more and more wind and solar showing up because the cost is progressively dropping,” says Ronald Schoff, a director for Electric Power Research Institute, during the discussion. Supply chain issues have changed the paradigm for the last few years, underscoring the need for a dependable system. “That means we’re going to rely more heavily on our natural gas, hydropower, and nuclear assets.

“What is the right balance? I don’t know the right answer. I think it changes as the system evolves,” adds Schoff. “We must manage risk at every point to ensure reliability, affordability, and safety.”

Will we keep coal for emergency purposes or phase it out? Louis Finkel, senior vice president of government relations for the National Rural Electric Cooperative Association told the audience that his membership serves 56% of U.S. territory and 92% of the persistent poverty counties in America.

To that end, coal still supports the grid in many states. He says that going too quickly and shutting down coal plants will decrease dependability, noting that realism and reason are essential to plotting a durable energy course.

Moreover, he points to recently passed laws, including the two that provide breaks for carbon capture and storage: 45Q and the Inflation Reduction Act. 45Q gives a tax credit of $50 per ton for CO2 that is captured and sequestered and $35 a ton for CO2 that is re-utilized, while the inflation act provides production tax credits for all clean energy sources.

“They create a pretty healthy financial incentive to look at carbon capture for coal,” says Finkel. “Once we get past the first of its kind and the second of its kind, long-term economics will drive those plans.”

But John Di Stasio, president of the Large Public Power Council, argues the economics and abundance of shale gas dethroned coal. Now that global energy policies center on decarbonization, the movement will accelerate.

“The first step was coal to gas, which was a huge greenhouse gas savings,” says Di Stasio. “The next step is looking at new technologies” like developing affordable long-term battery storage and green hydrogen. “But coal probably does not need additional pressure to get it off the system.”

Carbon neutrality is vital. But so is reliability, requiring natural gas and nuclear power. At the same time, emerging technologies are making headway and will conquer more markets due to federal incentives and public will. Utility companies and transmission operators will remake an evolving electricity model — critical stakeholders in the unyielding drive to net zero.

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