Decarbonisation, resiliency, distributed energy market policy and M&A in the year of COVID-19
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The human suffering and economic turmoil of the global coronavirus pandemic and the impacts of climate-change-driven heat waves and wildfires have given humanity little reason to celebrate the year that’s coming to a close.
But when it comes to the grid edge (the combination of technologies, policies and economic drivers encouraging the integration of clean energy, demand-side resources, and utility grid infrastructure), the past year has seen some significant advances, even if they’ve been partly driven by the climate-change threats that they’ll be needed to help solve.
US utilities commit to decarbonisation
By far, the biggest grid edge story of 2020 was the continued commitment of US utilities to mid-century decarbonisation goals or, more pertinently, those utilities that aren’t already facing state-level mandates to eliminate their carbon footprints. Over the course of the year, previous entrants such as Xcel Energy, Duke Energy and National Grid were joined by utilities including Dominion Energy, Southern Company, Arizona Public Service, Ameren, Entergy, Consumers Energy, Alliant Energy, Public Service Enterprise Group and even FirstEnergy.
Of course, pronouncements of intent to decarbonise do not necessarily equate to a clear plan for achieving that goal. Plenty of industry observers and critics have pointed out the gaps between utilities’ 2050 net-zero carbon goals and their short and long-term resource plans, many of which call for continued build-out of natural-gas-fired power plants. Others have come under fire for failing to include the emissions of the natural gas they sell to customers as part of their accounting. And almost all of the utilities on this list plan to rely on as-yet-untested technologies such as carbon capture and storage, power-to-low-carbon fuels or advanced nuclear reactors.
Even so, lower-carbon goalsetting was accompanied by a continued collapse in fossil fuel projects in real-time. Coal power continued its rapid decline, with utilities across the country accelerating plans to close down their dirtiest plants ahead of schedule. Natural gas and oil pipelines also saw setbacks. Dominion and Duke cancelled the Atlantic Coast Pipeline, and the Dakota Access Pipeline was blocked by legal challenges.
FERC Order 2222: Distributed energy as a grid resource comes of age
Distributed energy resources (DER’s) include everything from rooftop solar, behind-the-meter batteries and electric vehicles to backup generators, combined heat and power systems, and smart thermostats and appliances. The grid value of these resources has been recognised for years, but it is going to expand dramatically in years to come. Wood Mackenzie forecasts US DER capacity will reach 380 GW of capacity and constitute a $110 billion market by 2025.
This year marked some key turns toward capturing the value of DER’s, both in terms of public policy and private investment. On the public policy front, the Federal Energy Regulatory Commission’s legal victory upholding Order 841 for energy storage integration into wholesale energy markets was followed up by its issuance of Order 2222, which mandates the same market integration for DERs at large. While turning these orders into actual economic activity will be complicated, success could dramatically enhance the value of DER’s already being rewarded by state-level policies and utility programs and tariffs.
Private-sector investment in on-the-ground distributed energy
The private sector also put its weight behind DER’s in a big way, continuing a trend that began years ago with European energy giants buying their way into North American demand response, battery and EV markets. The 2020 trend focused on partnerships linking DER infrastructure providers with capital investors to bring large-scale distributed energy and virtual power plant (VPP) offerings to customers.
Schneider Electric and Huck Capital’s GreenStruxure and Siemens and Macquarie Capital’s Calibrant Energy are targeting distributed energy on the commercial and industrial side. On the residential side, demand response provider OhmConnect’s “Resi-Station” project with Google-affiliated Sidewalk Infrastructure Partners, and behind-the-meter battery developer Swell’s funding from Ares Management Corp. and Aligned Climate Capital adds to a growing roster of VPP providers including Sunrun, sonnen and Generac.
California’s wildfires and blackouts push DER role in combating climate change dangers
California, by far the country’s biggest market for DER’s, has also come to epitomise the need to integrate them into grid operations to protect from the rising ravages of climate change. Pacific Gas & Electric’s 2019 bankruptcy revealed the threat of poorly maintained power grids combined with increasingly extreme weather. California’s fire-prevention grid outages over the past two years have revealed the vulnerability of the state’s energy infrastructure.
The record-breaking heatwaves and wildfires of the summer of 2020 have pushed California’s increasingly solar-powered system to the limit, forcing rolling blackouts, emergency calls for energy conservation and a push to rework grid reliability policies to match its clean energy ambitions.
California policymakers, utilities, community choice aggregators and DER providers have been taking steps to enlist DER’s to provide power resiliency to fire-threatened communities and to support system-wide supply and demand imbalances. But much work remains to tap the full flexibility of demand-side assets like behind-the-meter batteries and EV chargers as they grow to gigawatt scale on California’s grid in the years to come.
Transmission needs to reach a critical mass
For years, US transmission grid investment and policy have been failing to keep up with the need for power networks to enable a clean-powered electric system. But 2020 may mark a turning point for this disconnect, with major transmission build-outs to support clean energy growth gaining valuable allies in the incoming Biden-Harris administration and lawmakers on both sides of the political spectrum.
Transmission projects are notoriously complex and time-consuming, and they can be derailed by opposition from multiple parties along their state-spanning lengths, often at late stages of development. They’re also subject to planning and cost allocation regimes that can undermine efforts to cross boundaries between regions served by different interstate grid operators and make it difficult to justify build-outs intended to serve future, rather than present, renewable power integration needs.
But multiple studies indicate that new transmission is perhaps the most vital step the US can take to increase its share of renewable energy, whether that’s onshore wind and solar power in far off plains and deserts or offshore wind along the US East Coast. Transmission proponents have called for FERC to put its authority to use to coordinate multi-jurisdictional transmission planning and cost-sharing and for Congress to pass laws to boost transmission as part of broader infrastructure investment. They’ve also called for incentives for technologies to make existing transmission networks more efficient, such as dynamic line rating and digital power routing.
Trump administration’s FERC under fire for grid policy decisions
FERC may have a positive role to play in encouraging DER’s and transmission development. But over the past few years, the agency’s Republican majority has approved several decisions that have been harmful to clean energy — at least in terms of potential future growth. FERC’s decisions on the capacity markets of Eastern US grid operators PJM, New York ISO and ISO New England are the most notable, given their impact on state clean energy policies in the affected regions.
The decision to impose a minimum offer price rule on state-subsidised resources in PJM territory has led states including New Jersey, Maryland and Illinois to consider exiting PJM’s capacity market entirely, despite the risks and costs of doing so. New York regulators are considering similar options in the face of FERC’s buyer-side mitigation decisions limiting state-supported renewables and energy storage, and New England politicians are demanding changes to policies that could threaten state carbon-reduction goals in the region.
FERC’s decision altering the rules of the Public Utility Regulatory Policies Act (PURPA) has also come under fire from clean energy advocates concerned it will stifle renewable growth in states outside of federally regulated wholesale energy markets. But the agency did win accolades from clean energy advocates for denying a petition that could have disrupted state net energy metering policies.
Coronavirus drives a late-breaking push on federal energy and grid investment
The coronavirus pandemic has wreaked havoc on global economic activity, but its impact on the clean energy and utility industries has so far been relatively muted. Even so, supply chain disruptions, permitting and construction delays and the inability of an increasing number of utility customers to pay their bills have put pressure on regulators and lawmakers to take steps to relieve these burdens.
US clean energy and grid edge industries faced a disappointing spring and summer, as efforts to pass a long-delayed federal energy bill and include federal tax credit extensions for wind and solar power faltered. But in a last-minute surprise, most of these wish-list items were included in the coronavirus relief and federal spending bill passed by Congress this month, setting up 2021 for billions of dollars in funding for grid integration research, development and field trials.