Democrats want to drive carbon emissions out of the US power grid. But groups representing thousands of smaller electric utilities are wary of being conscripted in the campaign.
The Democratic-led US Congress last week approved a $3.5tn budget framework set to include a “clean electricity payment programme”, which would reward utilities that sell more zero-carbon power and penalise those that sell less. The goal is to nudge utilities into selling 80 per cent of their electricity from clean sources by 2030, from about 40 per cent now.
Two trade associations together representing a majority of the nation’s utilities have raised concerns about the costs of such a programme, however, complicating its passage.
Greening the grid is crucial to reducing US greenhouse gas emissions. Climate experts say that deploying solar, wind, battery and nuclear technologies, along with possibly capturing emissions from fossil fuel generators, would clean up a sector that accounts for a quarter of US greenhouse gas emissions.
But pursuing this goal through a clean electricity payment programme, or CEPP, is “probably too ambitious”, Desmarie Waterhouse, vice-president of government relations at the American Public Power Association, told the Financial Times. About 1,400 municipal-owned utilities are members of her association.
“There’s a level of nervousness [among members] about whether we can still keep electricity affordable and reliable and having to do such a very huge transition in a very, very short timeframe,” Waterhouse said. “Even with all this money that’s going to be thrown at utilities to help them get there.”
Doubts are also brewing at the National Rural Electric Co-operative Association, which represents about 900 co-operatively owned utilities serving 42m people. Chief executive Jim Matheson wrote to Congressional leaders last week warning against the burdens of a clean-energy mandate.
“We don’t think that 80 per cent by 2030 or zero by 2035 are realistic timelines,” said Louis Finkel, the co-operatives’ senior vice-president for government relations. Echoing Waterhouse, he said: “Those timelines in our view are too aggressive and would jeopardise both reliability and affordability.”
Joe Biden wants the electric sector to be fully carbon-free by 2035. The president had initially proposed a national “clean electricity standard” that would require utilities to sell a certain amount of zero-carbon power, a concept tried in states such as New York and California.
But legislating through the budgetary reconciliation process — which allows Democrats to push a bill through the evenly divided US Senate without Republican support — limits any policy to measures that raise or spend funds. That made CEPP the leading proposal.
“The overall structure is very simple,” said Lindsey Walter, deputy director of the climate and energy programme at Third Way, a think-tank. “If utilities meet targets to sell increasing shares of clean power, then they get a payment. And for however many megawatt-hours they’ve fallen short of that target, they pay a fee.”
A majority of utilities are municipal or co-operative, but the biggest share of US electricity is sold by investor-owned utilities, which are typically listed companies. IOUs contacted by the FT expressed cautious interest in the payment programme.
“The concept in isolation, of paying to make the transition, can make sense,” said Victoria Sullivan, public policy director at Duke Energy, an investor-owned utility that sells electricity in six US states. “But like with any federal policy, the devil is going to be in the detail. And there are a lot of details that we’ve not seen yet.”
How a clean-energy payment programme would alter the finances of IOUs would depend on the way payments were structured and the extent to which it affected their “rate base” — the value of the assets on which regulators allow utilities to earn a return.
“The accounting really matters in this,” said Paul Patterson, analyst at Glenrock Associates. “The utility makes money on how much it’s actually invested. If the investing itself is offset, then they don’t grow their rate base as fast.”
Emily Fisher, senior vice-president for clean energy at the Edison Electric Institute, the trade group for IOUs, said that while the CEPP timeframe was “challenging” and “arbitrary”, big utilities were “cautiously optimistic and interested in engaging on the details”.
“We have the ability to raise capital to make progress on a lot of these goals in a way that municipal utilities and co-operative utilities don’t,” she said. “And I think clear policy signals about where we’re going only help us raise that capital and deploy it.”
Moving to a cleaner generation mix would be a bigger undertaking for some utilities than others. The Chicago-based utility and generation company Exelon’s mix is about 60 per cent zero-carbon as a result of its large nuclear fleet. At Georgia-based Southern Company, whose assets include the US’s largest coal-fired power plant, clean energy makes up 32 per cent of the mix.
A CEPP would be part of a two-pronged approach to cutting power sector emissions, alongside new tax credits for investing in renewable generation projects and in transmission lines to bring cleaner power to markets.
“We are on the precipice of the most significant climate action in our country’s history,” the Democratic Senate majority leader Chuck Schumer said in a letter to colleagues last week. “I do not believe we have the luxury of failure.”
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