One success of the Biden Administration’s $1.2 trillion Bipartisan Infrastructure Law has been offering the jumpstart electric, telecommunications and manufacturing industries need to make utility grid-altering investments for the longevity of our country’s infrastructure. More capacity is needed, and the delivery of power must be updated and reliable (aka grid hardening). However, with this level of increased bandwidth, investment must be futureproofed from the ground up. It’s not just about building. It’s about funding improvements to ensure operations are profitable to fulfill long-term demand.
Traditional Funding and Its Challenges
A major industry grid resilience challenge is the lack of generation capabilities (the amount of electricity produced to power communities) to meet growing energy demands.
The U.S. has no shortage of electricity usage, with innovations fueling the need for power. Emerging technology (e.g., electric vehicles, artificial intelligence), broadband deployment and more hold much promise to be an accessible reality for the general population. However, local Public Utility Commissions (PUCs) tend to slow or stop projects due to lack of funding and concerns about increased consumer rates. Therefore, they lose the primary driver to their profits and bottom line.
Traditionally, solving capacity issues starts with regulators at the state level and involves going to PUCs to embed requirements in their proposed programs to get a return on capital – which is achieved through increased consumer rates. As inflationary pressures continue alongside more newly approved utility projects, ratepayer fatigue is making this historical model less practical or desirable.
Ensuring return-on-investment (ROI) to support sustainable and long-term expansion will always be a concern for utility companies, but the pressing issue is around utilities having to cut projects or condense plans, given the lack of funding.
Supporting Increased Transmission Capacity
Higher electricity demands have already encouraged some U.S. states to implement creative solutions themselves. For example, South Carolina and Georgia are proactively installing small generator stations to create increased short-term capacity. South Carolina has also greatly enabled its grid development by shortening its infrastructure permitting process from approximately two years to six months.
These reform examples also underscore recent efforts on the federal level. For over a year, U.S. Senator Joe Manchin has championed a range of commonsense reforms intended to expedite critical infrastructure deployment, now reflected in new legislation streamlining the National Environmental Policy Act (NEPA) review process. In addition, the Federal Energy Regulatory Commission (FERC) finalized a regulation that would expedite permit reviews for clean energy projects.
While Koppers continues to fulfill our customers’ utility pole supply needs, we also continue to hear about the difficulties of permit review processes, which can impact purchasing decisions and timing. Customers in both traditional and clean/renewable energy need utility poles and permit reforms alike; not one over the other.
Supporting Increased Grid Reliability
The industry will continue to supply utility poles to support grid hardening; however, utilities can help themselves through better planning over a longer period of time. Doing so affords stability to the supply chain instead of facing peaks and valleys of supply periods.
A new, performance-based model – as opposed to the current traditional ROI model – for local utilities could help offset some of the major costs associated with expansion. This model would help utilities manage and pay for grid hardening projects relying on grid operation incentives. Performance-based rate making generally means tying electric utility revenues and profits to specific performance goals, such as uptime on the grid and response time to disasters. If utilities were compensated in this matter, ratepayers would benefit from a grid that is more operationally sound. A utility’s request for new capital expenditure funding would focus only on project execution rather than profits. The standard process of raising rates is not sustainable moving forward.
States like Hawaii, Illinois, New York and Rhode Island are at the forefront in experimenting with this type of performance-based regulation to reduce costs and support a clean, affordable energy system. Many jurisdictions throughout the country are using these approaches for their own efforts.
Furthermore, there is a continued need for innovation to improve how technology is engineered to facilitate the volume of power needed to support the grid.
Adapting to Keep Up with Energy Demands
Funding and expanding the national grid are complicated. Every year the industry encounters bigger and more complex challenges. We are confident our country has what it takes to develop a better, more future-proof process for grid resiliency, but it’s only possible when government agrees to effectively fund the very core of what powers our progress and changing the structure to a reliability standard with the help of government incentives.
