On the generation side, we’re seeing steady growth in smaller, natural gas-derived peaking assets and utility scale solar and wind. In July 2015, municipal utility, Austin Energy, bought 1.2 GW of PPA-based solar for less than $ .04 per kWh. Less than two years later, Tucson Electric Power (TEP) purchased 100 MW of solar with 30 MW of four-hour duration energy storage for a PPA price of only $ .045 per kWh. According to TEP, the solar portion of the PPA was priced at only $ .03 per kWh – likely the lowest solar price ever recorded.
At the same time, we’re seeing early-life shut downs of traditional coal-fired power plants and nuclear facilities such as Three Mile Island 1 and Quad Cities not clearing the 2017 PJM capacity auction for planning years 2019-2020. Word from Exelon is that the Three Mile Island plant will be shuttered in 2019 unless the state of Pennsylvania approves a policy shift that, in essence, would classify nuclear power as a clean power source like solar and wind. Such a shift would provide the plant with much needed revenue additions, but that seems somewhat unlikely due to state budget constraints and resistance from non-nuclear power generators.
Transmission and Distribution
States like California, Nevada, Arizona, and Colorado are pushing for renewable generation percentages of 50-100% by mid-century. With these kinds of penetration levels, the U.S. Energy Information Administration (EIA) is estimating that the U.S. will need to spend more than $2 trillion by 2035 in order to accommodate such significant quantities of intermittent renewables without disrupting the grid.
This investment would include much more than simply adding new power to remote renewable generation sites. Unlike much of today’s grid that transmits power in a single direction from large, centralized generation facilities, a modernized grid must be capable of handling two-way power and data flows from numerous smaller, distributed points of generation. Another challenge related to distributed energy resources (DERs) is how to value them based on time-of-use and geographic location on the grid.
Changing Policy, Regulation, and Business Model Challenges
In addition to the sizable grid modernization investments that must be made – and the need to recover those costs – with solar prices nearing or below grid parity in many states, utilities are trying to figure out how to deal with behind-the-meter grid defections and corresponding revenue losses. To generate new revenues, some utilities are getting into the solar industry through non-regulated internal startups. Meanwhile, others are pushing for increases in the fixed fee portions of utility pricing.
All of the above issues are challenging and complex with no easy or simple answers. However, utilities, state regulators, legislators, and federal policy makers alike are working hard to pilot regulatory changes and craft new business models that will address these 21st century utility industry challenges.
PowerSurety principals have worked closely with utilities of all types over the past 25 years and are committed to supporting their efforts in addressing the challenges outlined above. Although PowerSurety doesn’t make policy or regulation, we do understand how changes in both can be applied to address the dynamic needs of public utilities. Whether demand response, microgrids, renewable energy, energy storage, energy efficiency, DERs, or all of the above, PowerSurety provides both technical and commercial support focused on developing cost-effective and economically viable choices for utilities and their end-use customers.