The latest dispute over PJM’s bidding rules has raised the level of uncertainty in organized electricity markets. Efforts at reform have created a market structure so jumbled that it can’t produce...
Utilities can transform the world’s energy economy.
report indicated, growing use of food crops for biofuel feedstocks is exacerbating the problem by further driving up the cost of food.
While we don’t burn much oil in power plants anymore, all energy sources can be considered proxies for “the Prize.” Long-term price trends move in concert for all fossil fuels, and electricity is playing an increasingly important role in the global energy challenge.
With the right technologies in place, we could be using electricity—produced from a wide variety of energy sources—to power many of the processes that now require petroleum. Even incremental shifts away from petroleum can make a significant difference, in terms of energy costs and dependence on fuel imports, and just might start a wholesale transformation.
But that will require the utility industry to step up and accept a bigger challenge than it’s faced since electrification in the early 20th century. Hearkening back to Perceval and the Fisher King, it requires the industry to accept the mantle of hero—and to ask the questions that will allow the green-energy transformation to happen.
This transformation will require a major commitment to research, development and commercialization of new technologies (see “ Cultivating Clean Tech ”). It also will require a new cooperative partnership among utilities, policy makers and green-energy companies, to allow utility shareholders to benefit from a greener utility business model. And that cooperation might be the most difficult aspect of the green revolution, because it requires a cultural shift.
Since the 1980s, many utility companies have viewed green-energy solutions—such as renewable energy and conservation—as bitter pills shoved down their throats by do-gooder politicians. But this viewpoint merely reflects the harsh realities they’ve faced.
First, the Public Utility Regulatory Policies Act (PURPA) and integrated resource planning (IRP) forced utilities to absorb the costs of green energy, rather than rewarding them for making those investments. This backward approach made life more difficult for utilities—both financially and operationally—and left a bad taste in their mouths.
Next, the structure of the renewable production tax credit (PTC) has driven utilities to buy the output of renewable energy plants rather than to build those projects themselves and add them to the rate base. Utilities increasingly are investing in renewable energy plants anyway, but even today a utility offtaker can claim only 50 percent of the tax benefits from the renewable power it buys or generates for its own use. While power purchase agreements (PPA) can transfer some of these benefits as a function of prices, the PTC’s structure has sent utilities a clear message: They shouldn’t profit from the green energy revolution.
Finally, the PTC itself has held back the renewable energy industry. It has obscured the true value of renewable energy in the market, by discouraging utilities from entering PPAs or building renewable capacity when PTC renewal looks uncertain—as it invariably does every couple of years. Irrespective of whether prices would be attractive even without the PTC, utilities can’t reasonably commit to buy power at prices that likely will get cheaper after Congress finally gets around to renewing the PTC. (And