Who is up for some high-stakes investment decisions? Renewable energy companies and utilities are voicing support for the Inflation Reduction Act, which contains a 10-year spending plan estimated at nearly $370 billion for energy and climate measures. The act includes incentives and tax credits for a broad array of technologies including electric vehicles; storage; nuclear, wind and solar generation; carbon capture; advanced manufacturing and more. Faced with so many shiny prospects, the challenge for utilities may be what system improvements to pursue to take advantage of potential opportunities.
This observation is not intended as tongue-in-cheek. While everyone in the business knows utilities labor over annual resource plans to chart their direction and regulators approve those plans, today we are attempting to craft long-term strategies in dynamic, even volatile times. That’s making the process less certain or firm. One recent example of this uncertainty is a Virginia utility’s stated intent to walk away from a nearly $10 billion investment in a 2,600 MW offshore wind project if it is forced to meet a robust project performance guarantee. That project surely includes substantial transmission improvements with associated capital commitments that someone struggled to allocate strategically.
Other potential significant energy resource flip-flops include California regulators' initiative to finance the relicensing of the 2.2 GW Diablo Canyon nuclear plant for 10 years or longer after the plant was approved for retirement in 2018 and replacement capacity initiatives were undertaken. Also, due to energy cost uncertainty and the failure of sufficient renewable capacity to materialize, some utilities have put their coal plant retirements on hold. Each of these decisions have implications for their host T&D systems. For example, MISO has identified multiple transmission upgrades needed to maintain voltage and counter summer capacity shortfalls due to fossil fuel plant retirements. System upgrades in response to one coal plant retirement will take three or more years to complete.
To make the power supply conundrum even more challenging, it is unclear whether transmission expansion will be as essential prospectively as it was in the past. The power industry is witnessing an unprecedented emphasis on DERs, which can squeeze into systems at the sub-transmission and distribution level. Just look at the recent proposal from ISO New England approved by FERC that allows certain planned DERs to pass through a state interconnection review instead of the grid operator’s process. If adopted more broadly, this surprising shift in responsibility could dramatically change the makeup of grid resources everywhere.
Even nuclear technology, which has historically been positioned on the bulk power system with substantial transmission support, is now considered a candidate for more localized applications. The next generation of nuclear plants are likely to be small modular reactors (SMRs) with capacities ranging from 50 to 300 MW. SMRs are moving from the drawing board to reality at a time when utilities and regulators are increasingly concerned about the gap in zero-carbon capacity that will exist with recent and currently planned nuclear retirements.
Another destabilizer could be hydrogen. While many stakeholders are convinced that electrification will dominate the future of transportation and some industry applications, there is a movement to commercialize an apparent competitor for the same functions. Recently, the DOE issued a notice regarding funding for the development of regional clean hydrogen hubs (H2Hubs). The 2022 Bipartisan Infrastructure Law authorized $8 billion for creating networks of hydrogen producers, consumers, and local connective infrastructure to accelerate the use of hydrogen for clean energy applications. Such development obviously could reduce the utilization of electrification infrastructure for transportation and industry.
Increasingly, strategic projects and plans in the power sector are being reevaluated. When new technology applications are introduced or the scale of development is changed (both SNRs and H2Hubs), it is possible that more second guessing will occur as regulators and developers struggle to agree on the allocation of risks and performance guarantees. Further, it is also possible that the unprecedented funding and options contemplated by the Bipartisan Infrastructure Law and the Inflation Reduction Act will exacerbate power infrastructure decision making, particularly in the T&D sector.
Some would argue all the potential new opportunities are a great problem to have. One thing is clear: It has never been more important for utilities to be totally attuned to what is important to their customers and regulators. Decision makers also must gauge whether attitudes will change if there is a change of elected officials, the economy, or the global supply chain, including energy supply. Utilities have used everything from simple decision trees to decision matrices and complex models to assist with equipment selection, capital allocation and corporate competitive strategy. It is time to put on those thinking caps to evaluate the new opportunities and to ensure electricity providers maintain as much flexibility as possible for the inevitable bumps and curves to come.
