The National Association of Regulatory Utility Commissioners recently held a session titled “Getting It Right: Gas, coal, and the Future Generation Resources Mix.” In an embarrassingly one-sided panel discussion featuring David Carroll, President and CEO of the Gas Technology Institute and Mark McCollough, Executive Vice-President of Generation at American Electric Power, the verdict came in:
The future of the American generation mix should (prominently) feature natural gas and coal.
Put a pin in that for a second, and you may also be interested to note that the word “climate” did not come up once in the entire session.
Why is one of the most powerful groups of energy regulators in the United States having a conversation about the future of energy in American that doesn’t include consideration of climate change? This is by no means an unintelligent group. They are used to optimizing for economic and environmental concerns. They have a wide range of legal and regulatory experience, and access to the best scientific data available. They should be a high priority target for local environmental activists for education and influence. And yet….
In the generation game, it is a simple fact that if you don’t mention climate, renewables are just another special interest. Although they are rapidly reaching cost competitiveness (in fact, they are competing on an even footing in some markets), renewables have one crucial selling point: They are zero-carbon, and as a result, do not contribute to climate change.
Regulators will play a massive role in shaping the conditions under which new generation projects get built — and as two panelists emphatically noted, the risks associated with investing billions of dollars in projects that span 30 or more years are huge. They called for certainty about the policies that would govern these future projects. Regulators have a responsibility to get educated about the science of climate change, and create the appropriate disincentives for high-carbon generation. In other words, if costs really are going to be the bottom line, regulators should begin by translating the “externalities” from high carbon generation, that means gas and coal, into the cost analysis and decision making process around approving new plants. If climate change is never mentioned, though, and you write off the costs of pollution and climate change as non-factors, fossil fuels will continue to win the day.
This becomes incredibly important because, again as the speakers noted, utilities are making investments today that will guide decisions in 20 years. Allowing new fossil fuel generation to come online — whether because a natural gas supply glut has clouded their vision or because the costs are not appropriately integrated — forces us down one of two paths. The first path is utilizing high-carbon generation well into the future, exacerbating climate change and its impacts. The second is creating a pitched battle between the utilities who have sunk costs into these projects and the environmental advocates who are trying to take them offline. The losers in that fight will ultimately be ratepayers, who pay the costs of these generation projects over long periods of time.
The foxhole for these speakers, as would be expected, is reliability. Clean technology is great, they say, but it isn’t reliable enough to meet our needs. Furthermore, the customers foot the bill for those projects which are higher cost than fossil fuels.
A few notes here. First of all, NREL (and many others) have shown the grid can operate reliably on very high penetrations of renewables and other clean energy resources (such as biomass, hydropower, and geothermal). Second, customers also foot the bill for the health impacts of dirty air and will pay for the worsening impacts of climate change on their daily lives. Third, when customers cannot afford to pay those bills, they are covered by the taxpayer via higher healthcare costs or FEMA appropriations; a strategy that fuels the deficit. Finally, the risks associated with fossil fuel plants are actually shifted to the consumers in a way that they are not with renewables. This is because fuel costs (coal and gas) are variable and paid by the consumer, whereas the initial investment is fixed. Renewables are the opposite, fuel costs (wind and sun) are zero, whereas the initial investment is higher. This means that, as a consumer, you are assuming more risk in fossil fuel projects than renewables because you are at the beck and call of historically turbulent price fluctuations.
The speakers of course point to the higher costs associated with renewables, but forget that a transition to a clean energy economy would create millions of jobs and a higher quality of life for us and future generations.
In any case, NARUC can do much better. Educating our nations regulators about the real costs associated with the investments they are overseeing is a top priority in the absence of federal legislation. As Renewable Portfolio Standards have shown, states can lead on clean energy and drive actual transformation — even as the federal government falters. Regulators will be linchpins of the success or failure of initiatives at the state level to transition to a clean energy economy, and must rise to the occasion.