Grid Wars: The battle for distributed electricity

Rarely has a major industry in the United States reached a crossroad as stark as the one facing today’s electric utilities. The Environmental Protection Agency’s (EPA) recent proposal for regulating carbon emissions from power plants is just one part of a broader trend, as the century-old model of centralized fossil fuel burning electricity generation moves toward obsolescence. 

While policy and regulation are accelerating this transition, the fundamental drivers are a changing marketplace and evolving technology. Rates are increasing for electricity delivered from large, centralized, utility power plants. Meanwhile, advancements in distributed, onsite energy resources—including everything from solar energy, biomass, combined heat and power (CHP), and energy storage, to energy efficiency, demand management, microgrids, fuel cells, and advanced information technologies—are driving down costs, fundamentally shifting today’s economics. 

Beyond direct cost savings, distributed energy resources create other major benefits. These include: 

  • Reduced vulnerability to power interruptions caused by extreme weather events;
  • Improved physical security and cyber security;
  • Deferred utility capital investment requirements;
  • Grid optimization;
  • Reduction of climate threats and harmful air pollution; and
  • Economic growth and job creation.


According to the US Energy Information Administration, more than $2 trillion will be invested in new power generation over the next 20 years. Add this to at least another $1 trillion to $2 trillion in necessary transmission and distribution upgrades.

The question should, therefore, be: How do we, as a nation, want to invest this capital? Should it be on patching an old, central power plant model (think mainframe computers), or instead on a modern, distributed electricity system that supports entire new industries (think smart phones, the Internet of Things, and the Cloud)?

Enabling distributed energy will require more than new business models, however. The US electricity regulatory framework developed over the last 70 years is focused primarily on centralized power. It’s simply insufficient to support a modern distributed grid. Serious reforms will be required to achieve the promise of 21st century energy technologies. 

Seeking progress
EPA’s power plant rules and a series of orders issued by the Federal Energy Regulatory Commission (FERC) offer important progress toward energy modernization. A handful of states, including California, New York, and Hawaii, are actively developing the “utility of the future,” and many other states are considering policies that will support deployment of more distributed energy resources.   

But, these efforts are currently caught up in a broader battle, which is being waged primarily by coal interests, as well as other well-funded political groups. One such organization is the American Legislative Exchange Council (ALEC), which launched a multi-million dollar strategy to repeal existing policy frameworks and oppose new proposals supporting distributed energy in state legislatures across the country. 

Incumbent interests have filed lawsuits against grid modernization policies. Earlier this year, in a case brought by industry trade associations, a federal court in Washington, DC, struck down a key FERC directive that spurred innovation by opening new markets for advanced energy management providers. 

In a recent speech at the US Chamber of Commerce, Anthony Alexander, CEO of FirstEnergy, an electric utility headquartered in Ohio, gave voice to this strategy. He positioned distributed energy as a “war on coal,” saying onsite resources such as solar, wind, and energy storage sound good but “don’t do anything to maintain electric service.” 

Ohio’s state government has bowed to these arguments. In June, Governor John Kasich signed SB 310, a bill that freezes for two years and then rolls back Ohio’s renewable energy standards. This rollback was opposed by major Ohio business interests, including Honda, one of the largest employers in the state, along with the Ohio Manufacturers’ Association. 

To date, the opposition efforts pale in comparison to the campaign that’s coming to derail EPA’s proposal to allow “outside the fence” projects, such as distributed energy resources, to reduce power plant emissions. Even if the opponents are unable to fully derail EPA’s rule, the battle will then move to the states, where incumbent interests have long-standing relationships. 

As a spokesman for the National Mining Association put it: “We’re confident that at the state level, when this next level of rules are implemented, we’re going to have the broad-based support we need to make our voice heard and our concerns understood.”

Given this powerful opposition, the drive for policies supporting the major economic and security benefits of distributed energy resources will require strong, clear, organized, and united support. A broad variety of business interests have a direct financial stake in distributed energy.

Along with related trade associations, these include: industrial energy consumers (technology companies, manufacturers, and retailers); grid system integrators; renewable energy developers, manufacturers, and financing companies; commercial property developers and operators; smart grid and IT providers; and energy storage companies. 

The outcome of this debate will have huge impacts on US economic opportunities and international competitiveness in coming decades. 

It’s urgent that American businesses stand together in support of distributed energy. The business community should bring a unified voice to the state and federal policymakers setting the terms of this pending battle for the future of the US electric system today—from state legislatures and regulatory commissions, to Congress, the FERC, and the EPA, and other key federal policymakers. Moreover, business interests should urge broader federal leadership on distributed energy, even including issuance of an Executive Order by President Obama as necessary.

There is a case to be made here: Distributed energy resources will save money, improve reliability and the environment, and it can create new jobs and wealth in the US economy. Businesses will need to stand up and provide vital support for a 21st century electric system if it’s to take place.  


Jim Wrathall is counsel at Sullivan & Worcester’s Environment, Energy & Natural Resources Group in that firm’s Washington, DC office. He previously served as Majority Senior Counsel with the US Senate Environment and Public Works (EPW) Committee from 2007 through 2011.

 


Author: Jim Wrathall
Volume: November/December 2014