Climate Change Policy: Adjusting Energy Markets
For the first century or so of the utility industry’s life, things were slow to change and the status quo helped to prop up the prosperity of the business. Each home would have a single utility option available to them in a regulated market, and the relationship between utility and customer was basic: the utility deliveries power and fixes the occasional outage, while the customer pays their bill once per month. In recent decades, though, policy and regulations have been pushing back that perhaps the status quo model of the energy market is not the most efficient on the basis of costs to the customer, growth of new technology, and the implementation of climate-focused signals. As such, certain policies targeting these long-standing energy markets have taken center stage.
One of the great hurdles is the status quo of the power sector markets, to the detriment of the customers. As shared by Ross Macfarlane, Vice President of the Sierra Club:
“The move to clean energy is often being presented as a false choice between addressing climate and the economy, when really climate solution often save people money and grow jobs. In many cases, the only thing that is standing in the way of needed change is protecting the profits and incumbent power of some companies that want to be able to exert their monopoly status to continue to extract money from ratepayers to recoup their investments in old, dirty plants, as well as the politicians and regulators who the utilities have been able to establish cozy relationships with. The revolution we’re working on can save ratepayers money, can increase jobs, can build community wealth, and can also promote equity . Don’t take my word for it as environmental and climate advocate: listen to the CEO of NextEra (the country’s largest electric utility) who said that: “’There is not a regulated coal plant in this country that is economic today, full period and stop.’ The simple fact is the clean energy future is better for everyone.” — Ross Macfarlane, Vice President of the Sierra Club
Examples of some of these adjustments to energy markets that are in various stages of implementation already include the following:
Competitive Energy Markets
What is it: While most utilities operate with a regulated monopoly over their customers, increasing amounts of states and countries have deregulated their energy markets to allow for competition among multiple energy providers. Such monopolies mean there’s less incentive for utilities to innovate and adapt to customers’ desires, but over a dozen states have passed legislation allowing competition in their energy markets which lets customers choose among multiple energy suppliers who will provide their generation (transmission and distribution are still covered by the local utility so as not to build out multiple grid systems). Because more customers these days want to know their home is being powered by renewable energy, implementing competitive energy markets is a policy mechanism to incentivize utilities to adapt to these new customer requirements.
Is it enacted anywhere: According to Electric Choice, 17 states plus Washington DC offer deregulated electricity markets.
In Favor of Competitive Energy Markets:
“In states that are highly regulated, such choice is not possible. Utilities might use some renewable resources to generate their electricity, but customers do not often have the same option to choose 100 percent renewables. Utility companies could offer this, but they don’t have competition to incentivize them to come up with such innovative programs or to reduce the prices of their renewable energy offers.
Laws and regulatory directives could be introduced that require them to take these steps, but these routes are often less efficient than letting the market work.”- Emily Folk, Renewable Energy Magazine
“The most important thing is affordability. If a solution isn’t affordable, people won’t adopt it. That’s why it’s crucial to create an environment that gives consumers the freedom to choose their energy service provider. Competitive markets consistently do a better job than government subsidies and regulation of delivering the benefits consumers want – lower prices, better services and cleaner energy. Completing and strengthening the deregulation of electricity markets to create a stable and reliable power system through a marketplace that invites innovation and investment based on consumer demand, not government regulation and subsidies. Markets driven by consumer decisions do a better job of encouraging investment and innovation, adopting cleaner generating assets and are more efficient at setting prices than regulated markets. We see a renewed push to remove regulatory barriers to competition at the wholesale level and we believe consumers at the retail level should share in those benefits.” – Robert Dillon, Executive Director of Energy Choice Coalition
Against Competitive Energy Markets:
“The competitive market for energy is simply not working for residential customers. Consumers pay more for the same electricity, and even states with strong consumer protections have not ended overcharging and abusive marketing practices. In light of this history, states should consider whether competitive suppliers should be limited to the commercial and industrial markets and municipal aggregation.”- Jenifer Bosco, National Consumer Law Center
Read more:
Energy Deregulation Around the World: A Comprehensive Guide – Electric Choice
Energy Deregulation Opening Up Potential for Renewable Energy Future – Renewable Energy Magazine
Will Renewable Power Prosper in a Deregulated Industry? – Southwest Research and Information Center
Net Metering
What is it: Net metering, often a lightning rod for debate in the energy communities, is defined as a billing arrangement that compensates on-site producers of energy (such as customers with rooftop solar systems) for any excess generation that they do not use and instead export to the utility grid, though the level and format of the compensation vary by location.
Is it enacted anywhere: According to the National Conference of State Legislatures, at least 17 states have authorized the use of net metering.
In Favor of Net Metering:
“Customers with rooftop solar systems are not only paying their fair share, they’re actually helping to reduce costs for their neighbors as well. Specifically, the benefits of solar DG exceed the retail cost of electricity and the value of solar is greater than the compensation solar DG customers receive under net metering programs.”- Commissioner of Michigan Dan Scripps
“Net metering is like rollover minutes for solar. Anything your home doesn’t use, you put back into the grid and the utility is supposed to credit you back for that extra power. But utilities are decreasing the value for that credit more and more. So preserving net metering should be a top priority because it speeds up the homeowner’s ROI, and because utilities aren’t greening their grid as fast as we want them to. We need every fossil fuel watt on the grid to be replaced with cleaner solar watts as soon as possible.” – Tor Valenza, CEO and Chief Solar Marketer of UnThink Solar
“There is no one size fits all solution. Approaches to policy and financing need to be tailor made depending on the regional, national, and local situation. And approaches need to be reliable and predictable for investors for planning security and a supportive infrastructure such as with net metering, storage and preferred grid access for renewables – may that be the individual houseowner that puts solar on his roof or the utility scale investment by larger corporates.” – Dr. Stephan Singer, Senior Advisor Global Energy Policies at Climate Action Network
“You need to protect net metering. Investor-owned utilities in Iowa tried to take away net metering a few years ago, meaning instead of getting $0.10-$0.15 per kilowatthour, solar owners would only get avoided cost which is somewhere between $0.02-$0.03 per kilowatthour. Now you’re talking about 5 to 7 times longer to pay off your solar investment; a solar array that would have paid off in 2-3 years all of a sudden you’re talking 10-20 years. People can’t think that far in the future, and that would tank solar installations.” – Mike Carberry, Director of Green State Solutions
Against Net Metering:
“The private solar lobbyists in Lansing are pushing for a system that allows private homeowners to put a Cadillac-style energy system on their rooftops and pass the bill for maintaining the roads on to the rest of us.”- Bishop W.L. Starghill Jr, Michigan Democratic Black Caucus
Read more:
State Net Metering Policies – National Conference of State Legislatures
Net Metering – Solar Energy Industries Association
Net Metering: State, Local, & Tribal Governments – National Renewable Energy Laboratory
Decentralization of Energy Production
What is it: When energy production and the utility sector were set up and evolved over 100 years ago, the process that made the most sense in terms of efficiency and regulation was to have large-scale power generation take place in a central location (which could be controlled and regulated by a less local government agency) that would then disperse that energy over a large footprint to many different customers. In today’s world, though, power can be generated and is already generated on a smaller scale all over the grid, whether that’s a modest-sized wind farm, solar panels on a building rooftop, or otherwise. As the markets shift towards this more decentralized generation, policies encouraging this would look to give more control over local jurisdictions to make decisions over what power is going into the grid, where it’s coming from, and what’s the best decision for each smaller population.
Is it enacted anywhere: Everywhere that rooftop solar, small-scale wind, or any power generation not associated with a utility-scale power plant is already undergoing some form of energy decentralization.
In Favor of Decentralization of Energy Production:
“Decentralized and small-scale, locally-governed energy systems make more sense than corporate-controlled energy grids, the governance of which no community has any say in. If we’ve got local communities that, instead of subsidizing fossil fuels or wind or solar, can spend their money on local production, small-scale, small-impact production of energy, then that would be preferable. It may not be perfect, but it’s a better answer than people in board rooms hundreds of miles away making decisions about what’s going to happen in my backyard or your backyard.” – Ben Price, Community Environmental Legal Defense Fund
“The Biden Administration must work through the Federal Energy Regulatory Commission (FERC) to remove barriers currently in the way of clean energy and battery storage being more of a part of a flexible grid that taps into distributed energy resources. That would be transformative.” – Phil Radford, Founder and CEO of Progressive Power Lab
“Through community solar, people that are usually excluded from solar can be brought into the clean energy transition by passing appropriate state-level legislation that requires any utilities to connect shared solar gardens that individuals can subscribe to, rather than fronting for solar on their own rooftop, and then they should save money on energy bills and get the benefits of solar in that way without requiring the capital or the rooftop to do it. There are a lot of benefits when control of energy production is in local hands, as it becomes a lot more popular and it can be used to advance a lot more goals other than just cleaning the energy grid. With local control, they can use this clean energy development to provide clean energy job training, provide affordable energy to marginalized and low-income community members.” – Maria McCoy, Research Associate for the Energy Democracy Initiative at the Institute for Local Self-Reliance
“Customers, using their plugged-in devices, can help cost-effectively balance variability in renewable generation and provide assistance during grid emergencies. For this to work, electric vehicles, appliances, and HVAC systems would need to receive and be enabled to respond to prices or other information reflecting grid conditions. Prices would need to reflect the scarcity of energy resources and factor in costs associated with power plant emissions. Protecting low-income customers as the electricity system evolves is paramount. Providing these customers with grid-enabled devices that could help save electricity when it is scarce and expensive can help them avoid high prices and help promote equity.” – Jennifer Chen, President at ReGrid / Senior Fellow in Electricity Policy at R Street
Against Decentralization of Energy Production:
“Switching to a renewable or limited energy source may also have repercussions for security, scalability, and storage. If the power fails, you need to have enough energy stored away to continue operations when relying on renewable sources. You also need to be sure the grid or local supply you’re tapped into can handle the growth of your organization or operations. This can lead to more red tape during normal operations and expansion that you wouldn’t otherwise have with traditional energy channels.” – Thomas Industrial Insights
Read more:
Five Reasons to Switch to Decentralised Electricity Generation – The Governance Post
