2017 saw upending events in the utility sector as long-term trends showed staying power

Energize Weekly, January 3, 2018

The utility industry faced a tumultuous 2017 with big policy initiatives from Washington and strong underlying trends continuing to challenge the sector. Many of the year’s big stories came from the Trump administration, but markets and corporate decisions also played a big role in defining 2017.

And despite the high-profile pronouncements and politics, 2017 saw the utility sector continue with transforming investment in upgrading the grid and steps to overhaul the electric generation portfolio. Trends set to continue into 2018.

Here, in no particular order, are Energize Weekly’s picks for some of the year’s top power sector stories.

1. The U.S. leaves the Paris climate accord, and the federal Environment Protection Agency (EPA) rescinds the Clean Power Plan (CPP). In June, President Donald Trump announced that the U.S. would exit the Paris agreement under which each country set voluntary targets for cuts in carbon dioxide emissions. Trump also directed the EPA to dismantle the CPP, put in place by the Obama administration. The plan aimed to reduce power plant carbon emissions by 30 percent over 2005 levels by 2030. For Trump, this was part of his rollback of what he charged was Obama’s “War on Coal.” Still, many in the utility industry say they expect carbon controls at some point, and these moves amounted to a measure of regulatory uncertainty.

2. The U.S. Energy Department pushes wholesale market subsidies for financially ailing coal-fired and nuclear power plants. Energy Secretary Rick Perry is pressing the Federal Energy Regulatory Commission (FERC) to subsidize coal and nuclear plants that can’t compete on price alone in regional wholesale power markets. Perry argues that these plants aid in the resiliency and security of the grid. The proposal, still pending before FERC, could by one estimate add as much as $10 billion on to customer bills and has been criticized by regional transmission organizations, such as PJM, operator of the country’s largest wholesale market.

“This would blow the market up,” former FERC Chairman Jon Wellinghoff, a Democrat appointed to the commission by President Bush in 2006, said in one interview.

3. Turmoil in the nuclear power sector with bankruptcy, a plant cancelled and another hanging on. In March, the Westinghouse Electric Co., the main developer of nuclear units in the U.S., filed for bankruptcy protection as plants it was building, one in Georgia and one in South Carolina, faced delays and more than $13 billion in cost overruns.

In the wake of the bankruptcy, South Carolina Electric & Gas and Santee Cooper pulled the plug on their V.C. Summer nuclear project near Columbia. S.C., after spending $9 billion. On Dec. 19, the Georgia Public Service Commission approved the continued construction of the Vogtle nuclear expansion project. The project is slated to be finished in 2022, five years behind schedule, at a cost of $25 billion, more than 56 percent over budget. Westinghouse executives say they hope to conclude bankruptcy reorganization in 2018.

4. A new federal tax law gives utilities a boost and creates uncertain terrain for renewable energy developers. Just before Christmas, Trump signed into law an overhaul of the federal tax law. A cut in the corporate tax rate to 21 percent from 35 percent will help utility balance sheets. Companies will be able to deduct the cost of capital projects from taxes in the first year rather than over time. The industry will also be able to preserve the ability to deduct state and local taxes from their federal tax bill.

Wind and solar developers avoided the harshest proposals for doing away with wind and solar tax credits, but the new the Base Erosion Anti-Abuse Tax (BEAT) will limit the use of those energy tax credits. “We are uncertain how the marketplace will react to the fact that more multi-national firms may now be covered by the BEAT, and tax credits may not all be usable in any given year,” Gregory Wetstone, president and CEO, American Council on Renewable Energy, said in a statement.

5. Suniva and SolarWorld press for tariffs on imported solar cells, and the decision is in the hands of Trump. Two bankrupt solar panel makers—Norcross, Ga.-based Suniva Inc. and Hillsboro, Ore.-based SolarWorld—filed a complaint with the International Trade Commission (ITC) charging cheap, imported photovoltaic (PV) solar cells with damaging domestic manufactures. The ITC ruled there was “injury.” The companies filed their petition under a little-used section of trade law that gives the president broad powers to impose global, as well as individual country sanctions. The ITC sent an array of options for tariffs, quotas and import fees to Trump, who has until late January to make a decision. Any rise in the cost of solar cells is likely to affect utility-scale projects, which are sensitive to even small price changes since each project uses many modules. The Solar Energy Industries Association has predicted that the severest of the tariff proposals could lead to the loss of as many as 88,000 solar jobs—a third of all jobs in the sector.

6. The utility industry steps up its investment in upgrading the power gird, but more needs to be done. Transmission has become a priority for utilities with expenditures up 16 percent between 2011 and 2016, according to an analysisby energy consultant ScottMadden. Investor-owned utilities have plans to invest $41 billion through 2019. Actions to modernize the grid were underway in 37 states and the District of Columbia, according to a 2017 survey by the NC Clean Energy Technology Center.

The two biggest drivers are reliability issues, particularly in states such as New York, which suffered grid failures after Hurricane Sandy, and states like California, which is absorbing more distributed renewable energy. Sixty percent of respondents in a survey this year of utility executives by the engineering firm Black & Veatch cited reliability and aging infrastructure as the major drivers of transmission investments. Still, the American Society of Civil Engineers in its 2017 Infrastructure Report Card estimates between 2016 and 2025, the cumulative investment gap for the utility industry, including generation, transmission and distribution, is $177 billion.

7. The nation’s electric generating portfolio continues to be transformed. Despite the Trump administration’s effort to bolster coal and coal-fired power, decisions by a host of utilities and power developers continue to change the generating profile in the country. An estimated 3.9 gigawatts (GW) of solar generating capacity came online in 2017, the second biggest year ever after record-setting 2016, according to GTM Research.

The bulk of the installations were for utility-scale solar, but more than half of U.S states are now also at grid parity for rooftop solar—meaning the levelized cost of energy is below the electricity bill savings in year 1 of system life.

Through the first three-quarters of the year, 25 percent of all new electric generating capacity brought online in the U.S. was solar, ranking second over that period only to natural gas.

There may be a slowdown in 2018, but total installed U.S. PV capacity is expected to more than double over the next five years, according to GTM Research.

Wind installations that came online, are under construction, or in development through the third quarter of 2017 totaled nearly 2.9 GW, a 27 percent increase year-over-year, according to the American Wind Energy Association.

Since 2014, the majority of new generation coming on online has been renewable technologies, primarily wind and solar, according to the federal Energy Information Administration (EIA). In March, for the first time, monthly electricity generation from wind and solar exceeded 10 percent of total electricity generation in the United States.

The utility industry is also set to add 36.6 GW of natural gas-fired generation over the next two years—the most in more than a decade, according to the EIA.

Meanwhile 54 units at 27 coal-fired plants, with a total of 27 GW of generating capacity, closed or announced closure plans this year. In 2016, the first new nuclear plant since 1996 went into commercial operation, the Tennessee Valley Administration’s 1 GW Watts Bar Unit 2. But between 2013 and 2016, five nuclear plants with about 5 GW of capacity were retired.

“There’s a rebalancing of the generation resources, not only in our company but in this country, that’s going on,” said Nick Atkins, the CEO of American Electric Power.

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