This is the primary piece in Utility Dive’s four-part 2022 outlook collection analyzing key insurance policies and trends driving the U.S. power sector.
At the beginning of the Biden administration’s second yr, authorities businesses are starting to implement the Infrastructure Investment and Jobs Act, the bipartisan infrastructure package deal Congress handed final yr. Concerns stay excessive in regards to the reliability and safety of the U.S. power grid, and the way forward for the Build Back Better invoice and its clean-energy provisions stays unsure. The Federal Energy Regulatory Commission, which now has a Democratic majority and a full complement of commissioners, is poised to play a key position in how a lot the administration’s local weather and vitality insurance policies advance.
States, utilities and different companies proceed to pursue bold clear vitality and decarbonization objectives, that are driving extra deployment of renewable vitality, storage, distributed vitality assets and electrical autos throughout the nation. These assets are evolving too, with better focus within the storage sector on long-duration property and strikes to construct out the provision chain in U.S. offshore wind, for instance.
The broad modifications occurring within the U.S. power sector are prompting issues, nevertheless, about guaranteeing the prices and advantages of the vitality transition get distributed equitably. Utility Dive’s editors and reporters summarize the highest issues, challenges and priorities throughout the sector for 2022 beneath.
Reliability and resilience issues stay entrance of thoughts
In 2022, the power sector will seemingly proceed to scrutinize and put money into constructing a grid that’s extra resilient to a altering local weather and extra extreme pure disasters, mentioned Michael Colvin, director of regulatory and legislative affairs in California with the Environmental Defense Fund. Utilities can be contemplating whether or not they need to be placing extra tools underground or investing extra in microgrids, for instance, he mentioned.
Some states will want to adapt their regulatory regimes to a altering useful resource combine, in accordance to Seth Hilton, a associate at regulation agency Stoel Rives.
“You can hit a tipping point, and all of a sudden you have a ton of solar on the system … and then you have markets or regulatory regimes that aren’t really structured to deal with those types of resources very effectively,” Hilton mentioned.
Software provide chains are susceptible, ransomware a ‘nuisance,’ however consultants say the grid will stay secure
The electrical grid will seemingly stay secure, consultants say, due to huge investments in safety and a separation between operational programs and data know-how.
“There has never been even a small outage caused by a cyberattack in the U.S., and I see no reason to expect one this year,” safety advisor Tom Alrich mentioned in an e-mail.
Utilities might truly begin to see insurance coverage premiums decline if their security report holds as the chance is best understood, mentioned Michael Gaudet, U.S. vitality, power and utility chief inside Marsh’s monetary {and professional} legal responsibility observe. Marsh is an insurance coverage dealer that works with underwriters who present utilities with cyber insurance coverage.
Utilities might truly begin to see insurance coverage premiums decline, mentioned Gaudet, if their security report holds as the chance is best understood. One drawback they’re up in opposition to, is {that a} widespread grid failure could be catastrophic.
Lloyd’s of London in 2015 estimated the financial impacts of a widespread assault on the U.S. power grid might vary from $243 billion up to $1 trillion in essentially the most damaging situations. But the chance of such an assault is scant.
“I work in the insurance markets all the time interacting with underwriters. So I hear a lot of their perspective. The underwriters have a stigma related to utilities,” mentioned Gaudet. Ransomware will proceed to be a risk, he mentioned, however precise losses within the utility sector are minimal.
Ransomware will proceed and largely be a “nuisance,” Mark Carrigan, cyber vice chairman of course of security and operational know-how cybersecurity at Hexagon PPM, mentioned in an e-mail. “A much greater concern to grid reliability are the supply chain vulnerabilities that are being discovered on a regular basis,” he mentioned. “This issue requires very little expertise to exploit and provides an attacker with wide latitude once accessed.”
Supply chain threats are rising and are usually not receiving a lot consideration exterior of the software program neighborhood, mentioned Alrich.
“These are primarily IT threats and they can devastate a utility financially, even if they don’t impact the grid,” he mentioned.
Transmission, gasoline infrastructure and market reform high FERC’s agenda
The Federal Energy Regulatory Commission begins out 2022 with a full complement of commissioners, which FERC Chairman Richard Glick says will assist the company’s decision-making course of. Glick has set an bold agenda for FERC.
“It seems like there’s a willingness to push pretty hard to move [the issues] through, if not on an expedited basis, at least in a pretty brisk fashion,” former FERC Commissioner Tony Clark mentioned.
Glick goals to situation a proposed rule early this yr revamping necessities for transmission planning, value allocation and grid interconnection, with a remaining rule coming earlier than 2023, he mentioned in December. FERC might break a number of the points into separate proposals, Glick has mentioned.
Also, FERC is contemplating updating its standards for reviewing proposed pure gasoline infrastructure tasks, which have not considerably modified since 1999. It might change the way it decides whether or not the infrastructure is required, how proposed amenities would have an effect on the local weather and environmental justice communities, and the way greenhouse gasoline emissions may very well be mitigated.
“There’s a lot, and it’s being done in a pretty hotly charged political environment as it relates to pipelines,” Clark mentioned. “Capitol Hill is interested, the industry is very interested, environmental stakeholders are interested … it has the potential to be very controversial.”
FERC will proceed to evaluate market guidelines to make certain they do not forestall rising know-how, resembling vitality storage, from taking part in wholesale power markets whereas additionally guaranteeing the electrical system is dependable, in accordance to Jeff Dennis, Advanced Energy Economy managing director and normal counsel.
FERC held a collection of technical conferences final yr on points resembling capability markets, vitality markets and ancillary service markets, teeing up potential motion this yr, Dennis mentioned.
Expect power market progress within the West, extra environment friendly buying and selling within the Southeast
“Regionalization is on the move, whether it’s for capacity sharing, … or energy markets to transact energy in real time and day-ahead or a full [regional transmission organization],” Vijay Satyal, Western Resource Advocates regional vitality markets supervisor, mentioned.
Satyal mentioned he’s following three predominant market developments.
In the West, the California Independent System Operator (CAISO) is working with stakeholders to develop an prolonged day-ahead market (EDAM) that might construct on the prevailing vitality imbalance market (EIM), which has grown to cowl a lot of the West. The EDAM could be open to EIM individuals. CAISO employees goals to situation a draft EDAM proposal in mid-April.
Meanwhile, the Southwest Power Pool (SPP) is transferring forward with market choices for Western utilities. The grid operator final yr launched its Western Energy Imbalance Service market, which gives real-time balancing providers to Basin Electric Power Cooperative, Tri-State Generation and Transmission Association and different power suppliers.
Some Western utilities are contemplating becoming a member of SPP. The grid operator is within the early levels of creating a package deal of day-ahead and different providers it calls Markets+ for utilities that do not need to be part of SPP, however need market providers.
Finally, the Northwest Power Pool spearheaded an effort to create the Western Resource Adequacy Program, which was launched in December. The program, which SPP would function, has 26 individuals. The program is designed to assist utilities make certain they’ve sufficient capability to meet their wants.
Meanwhile, a bunch of Southeast utilities can be setting up this yr a computerized platform to make their bi-lateral trades extra environment friendly, though critics contend it is not a real market. Advocacy teams have requested FERC to rethink its tacit approval of the platform, referred to as the Southeast Energy Exchange Market, which went into impact when the company deadlocked over the plan.
The offshore wind trade is establishing provide chains on the East Coast and getting ready for westward growth
Offshore wind within the U.S. acquired robust indicators from the federal authorities about long-term alternatives for deployment when Interior Secretary Deb Haaland on Oct. 13 shared a street map of leasing actions on the outer continental shelf by 2025.
In February, the Bureau of Ocean Energy Management will maintain the most important offshore wind public sale to date, masking six areas within the New York Bight. The company will proceed to determine leasing areas within the Gulf of Mexico and off of Northern California. States additionally are setting deployment targets, with New York not too long ago asserting an extra solicitation for up to 2 GW of offshore wind.
On the East Coast, states and the federal authorities proceed to put money into the offshore wind provide chain in “a race to be the state that is leading the charge on that and bringing those jobs to their state,” in accordance to Autumn Proudlove, NC Clean Energy Technology Center senior coverage program director.
As the federal authorities creates alternatives for leasing in different areas of the nation, jobs and alternatives throughout the offshore wind provide chain will unfold throughout the nation, mentioned Sam Salustro of the Business Network for Offshore Wind.
“We’re already seeing manufacturers in the Midwest be participants” in numerous solicitations for offshore wind tasks, mentioned Salustro, the community’s director of coalitions and partnerships in Maryland.
While photo voltaic and onshore wind are dealing with supply-chain points proper now, it is “less of an issue for offshore wind because it’s still a couple of years off before installations really take off,” mentioned Patrick Luckow, an affiliate director at IHS Markit for gasoline, power and vitality futures.
Storage advocates eye regulatory processes because the sector sees record-breaking progress
The U.S. vitality storage trade continued to break data in 2021, putting in an unprecedented 3.5 GWh of recent storage within the third quarter of the yr, and it was poised to surpass that quantity within the fourth quarter.
Several storage tasks which have been beneath contract are anticipated to come on-line within the U.S. in 2022, mentioned Jason Burwen, vice chairman of vitality storage on the American Clean Power Association. In addition, storage advocates can be watching to see if some latest regulatory modifications — just like the change in capability accreditation strategies PJM makes use of — come to fruition.
The outlook for the storage sector in 2022 additionally hinges to a sure extent on whether or not the Build Back Better Act passes, Burwen mentioned, with its proposed funding tax credit score for stand-alone vitality storage. If the invoice passes, this market will turn into “an enormously crowded place for folks to get projects built…,” he mentioned.
Despite this report progress, battery provide chains have confronted constraints within the final yr. Although international provide is ramping up, demand has expanded quicker, and logistical challenges to transferring items might elevate costs and lead to challenge delays. The demand may also lead to better consideration to non-lithium battery applied sciences, Burwen mentioned.
In California, a key situation for storage advocates in 2022 can be bettering regulatory processes, like expediting approvals and streamlining allowing, Jin Noh, coverage director of the California Energy Storage Alliance, mentioned throughout a December webinar.
“[W]e can’t do just-in-time procurement, as we’ve seen, when we have these macroeconomic shocks like supply-chain issues or COVID. This creates a lot of risks in achieving our goals,” Noh mentioned.
The long-duration storage market gained momentum as nicely, with 2021 seeing the debut of 1 challenge utilizing iron-air-exchange batteries and functions for compressed-air vitality storage at two proposed amenities in California. There is “a lot of recognition by investors that if we’re moving rapidly to a clean energy future, energy storage, and particularly longer-duration storage, is going to have a very critical role to play,” mentioned Burwen. Even if deploying long-duration storage at scale is a few years away, creating merchandise, getting individuals accustomed to them, and making gross sales and contracts begins now, he added.
Distributed vitality useful resource installations will proceed rising
Analysts count on distributed vitality useful resource installations, together with hybrid amenities, to proceed rising this yr regardless of ongoing provide chain issues.
Wood Mackenzie and the Solar Energy Industries Association anticipate residential photo voltaic installations will develop 12% this yr, up from roughly 4,000 MW final yr, in accordance to a mid-December report. The consulting agency expects industrial and different distributed photo voltaic installations may also develop this yr. Installations will seemingly be even greater if Congress passes the Build Back Better laws, the agency mentioned.
AEE’s Dennis expects to see progress in hybrid photo voltaic and battery amenities within the 1 MW to 5 MW vary which are related to the distribution system and may take part in wholesale markets.
“That’s a real trend we’re already seeing, particularly in places like New England, where states have incentives for those kinds of programs,” Dennis mentioned.
FERC could have a job in guaranteeing that a lot of these assets can transfer rapidly by the interconnection course of, Dennis added. FERC might take into account giving states extra authority to oversee their interconnection, he mentioned.
Vehicle electrification, particularly of transit fleets, is also poised to take off this yr, in accordance to Dennis, partly due to Infrastructure Investment and Jobs Act funding for electrical car charging stations and for electrifying transit fleets.
“I think school bus fleets, in particular, are an incredibly interesting, great resource because of how predictable they are and because of the size of the loads that an electrified school bus fleet would have in a larger school district,” Dennis mentioned, noting that some bus depots can have 5 MW of load.
Electric autos have reached a tipping level
EVs, together with battery electrical and plug-in hybrid, reached about 5% of recent car gross sales in 2021 and will attain 7% to 8% in 2022, in accordance to Plug in America Executive Director Joel Levin. “The big limitation is going to be the supply chain problems,” he mentioned.
Manufacturers’ new choices might lead to 100 or extra electrical car fashions out there within the U.S. in 2022, with pickup vehicles added to the combination for the primary time.
Utilities are beginning to see ensuing load will increase, and they are going to be rolling out new charge-management packages and charges in response.
Some areas will see “massive” additions of recent load, mentioned Gregor Hintler, U.S. managing director for The Mobility House, which develops programs to assist fleet prospects handle car charging. In normal, nevertheless, the load will come on-line step by step as prospects buy new autos.
Experts say the expansion is anticipated, and utilities are getting ready to meet it.
“Utilities are already including EV loads into their short- and long-term planning, which includes everything from generation to transmission to distribution,” mentioned Dan Bowermaster, the pinnacle of EV analysis on the Electric Power Research Institute.
While utilities already use EV charges to create incentives for charging in off-peak hours, Bowermaster mentioned extra smart-charging applied sciences will quickly start to permit the broader use of managed charging.
Maria Kretzing, director of innovation at Bidgely, mentioned she was concerned with 5 completely different regulatory proceedings or filings in 2021 that have been associated to managed charging, and she or he expects that quantity will triple within the subsequent yr.
“I think people are only going to continue to realize that investment needs to be made in that area,” Kretzing mentioned. “This is only going to come faster and faster.”
Cities will proceed to lead on constructing electrification
The U.S. Department of Energy turned its focus to constructing electrification in 2021, rolling out new initiatives and constructing codes to assist remove greenhouse gasoline emissions and transfer towards a carbon-neutral financial system by 2050. But observers say the federal authorities is enjoying catch-up to native leaders on the problem after years of inaction, and cities will proceed to paved the way in 2022.
“Cities often have made ambitious climate goals … and there’s a lot of political will and support at the city level to make good on those goals,” Jenna Tatum, director of the Building Electrification Institute, mentioned, whereas federal and state give attention to local weather change “seems to be a little bit more varied and dependent on the administration.”
Research from the Electric Power Research Institute “shows a growing trend for cities and states to continue with updating their building codes to favor electrification,” Ram Narayanamurthy, EPRI’s superior buildings program supervisor, mentioned in an e-mail.
Big electrification information in 2021 got here in a variety of cities, together with Denver’s ordinance on vitality effectivity, renewable vitality and decarbonization for industrial and multifamily buildings; New York City’s gradual ban on gasoline hookups in new buildings and Philadelphia’s examine of enterprise diversification choices for its municipal gasoline utility.
Cities have the flexibility to cross codes that transcend state guidelines and may require solely electrical heating programs, however usually, “these are not gas bans, with exceptions provided for uses like commercial cooking,” Narayanamurthy mentioned.
“Cities can lead and drive this transition,” mentioned Tatum. “It’s really what our theory of change is based [on].”
There can also be a countervailing pressure, mentioned Narayanamurthy. Some states are additionally outlawing gasoline bans “which is an opposing trend that ensures that fuel-based heating systems are embedded into the building stock for a long period of time.”
A consumerist push from regulators might gradual the vitality transition
Rising pure gasoline costs, rising inflation and the tip of COVID-related utility invoice aid packages might set off a sharper focus by utility regulators on retail electrical energy prices, main to pushback on aggressive renewable vitality plans, in accordance to Paul Patterson, a Glenrock Associates fairness analyst.
Utility regulators in states together with Arizona, California and Kansas are elevating issues about utility overbuild, utility return on fairness and electrical affordability, Patterson mentioned.
The California Public Utilities Commission in September moved ahead with a course of to develop methods to ease rising electrical energy payments. The CPUC mentioned that if left unchecked, rising payments might make transportation and constructing electrification objectives more durable to obtain.
In addition, the Kansas Corporation Commission, in a November determination, mentioned it was involved about Evergy’s $10.4 billion, five-year capital expenditure plan that features constructing wind and photo voltaic amenities and upgrading its grid.
“Evergy’s investment decisions, including the timing of investments, should not prioritize shareholder interests to the detriment of ratepayer interests,” the fee mentioned. “Upsetting this balance of interests could result in diminished returns to the company and/or the disallowance of certain investments.”
Mark Christie, a Federal Energy Regulatory Commission commissioner, final yr warned there may very well be a backlash to the vitality transition if persons are hit with rising electrical energy payments.
“If the public sees this as something that they’re going to suffer through, that they’re going to suffer outages or they’re going to see skyrocketing power bills, I think you’re going to see a lack of political support for it,” Christie mentioned throughout the American Council on Renewable Energy’s Virtual Grid Forum in November.
Policymakers and utilities will extra typically make fairness a part of their decarbonization issues
Advocates say a surge in coal retirements anticipated this yr emphasizes the significance of a Build Back Better invoice provision that might create incentives for clear vitality workforce improvement and different investments in coal communities. According to the U.S. Energy Information Administration, coal capability retirements slowed to 4.6 GW final yr however will improve to 12.6 GW this yr, above the 2015-2020 common of 11 GW per yr.
To carry jobs to communities which are reliant on coal whereas additionally profiting from the prevailing interconnection factors, some utilities and states try to web site renewable assets at outgoing coal vegetation, in accordance to Mike O’Boyle, director of electrical energy coverage for Energy Innovation. Not each coal plant could have the proper situations for constructing wind or photo voltaic, nevertheless, he famous.
The Colorado legislature created the Office of Just Transition final yr to assist navigate grid decarbonization in communities which are reliant on coal. Its proposed plan outlines ways in which, with help from the state, communities can appeal to new funding to help companies and develop economically. It set the stage for Xcel Energy’s clear vitality plan in 2021, which thought of coal retirement points similtaneously renewable vitality placements, O’Boyle mentioned.
North Carolina Gov. Roy Cooper, D, not too long ago signed an government order that, amongst different issues, added “environmental justice and equity” leads in every of the governor’s cupboard departments and tasked them with integrating fairness into the clear vitality transition, partly by coordinating neighborhood engagement and public enter into transition efforts.
These priorities have turn into a chunk of coverage design in addition to a consideration that utilities will incorporate in sure packages, Proudlove mentioned.
Utilities will “often set aside certain funding for specifically disadvantaged or underserved communities or provide higher levels of incentives for those communities” in packages like electrical car charging, she mentioned.