How IRPs Can Help Us Meet Our Energy Needs
Integrated resource planning is a critical but often overlooked process in the sphere of public utility regulation. An Integrated Resource Plan, or “IRP”, is a long-term strategy to meet projected energy needs. Through a collaborative, ongoing process, an IRP brings utilities, regulators, and stakeholders together to forecast future energy needs and develop a roadmap for meeting those needs. The goal of an IRP is to select the “best” combination of resources to meet forecasted demand. The question is, Best for whom? The Alliance for Affordable Energy works to ensure that the resources selected are best for the rate-paying citizens of Louisiana.
IRPs seek to plan twenty years into the future and must make assumptions about population growth, demand growth, potential regulation, and fuel prices. In current IRPs the utilities have modeled their projections under a variety of scenarios but generally predict an “industrial renaissance” that will require more energy as the states petrochemical and manufacturing sectors grow. Additionally, as the state’s population continues to grow, so do its electrical needs. The utilities exhibit a general bias towards meeting this demand by building more power plants. This is in their interest as businesses; they are guaranteed a return on money spent building new plants, needed or not. As monopoly public utilities, however, their business interests must take a back seat to the public’s interests.
The Alliance would like to see the utilities reduce or manage increasing demand for energy so ratepayers don’t foot the bill for expensive and unnecessary new power plants. The utilities should also take steps to hedge against fossil fuel price spikes by diversifying their generation portfolios, including increased use of rooftop solar. Finally, the utilities should account for the impacts of climate change and climate change regulation that will alter the future energy landscape.
DEMAND SIDE MANAGEMENT
Energy efficiency programs to reduce demand are generally the most cost effective resources for utilities. By reducing the amount of electricity used, demand side management lowers customer’s bills and obviates the need for new power plants. Further, reducing an individual’s energy needs protects them against future rate hikes and reduces the environmental impact of power generation. Demand side management is a largely untapped resource with great potential to offset consumption and reduce rates.
Closely related to demand side management, demand response seeks to reduce a customer’s electric use in peak demand periods. In the heat of summer when extra electricity is needed, utilities are often required to purchase energy on the wholesale market or fire up expensive peaking plants that otherwise sit dormant. Demand response avoids the need for such costly options by temporarily offsetting or deferring a customer’s energy consumption. According to a report from Greentech Media, economic demand response could have saved the Texas energy market $85 million in a single day. Demand response is especially effective with large energy consumers like industrial facilities. If much of the projected growth in demand is coming from the industrial sector then it makes sense to manage that demand in a cost effective manner, rather than build new generation.
Much of the utilities’ reliance on new power plants stems from their very conservative outlook on natural gas prices. Seven years ago natural gas prices were four times what they are today. Natural gas prices have a history of volatility, yet the utilities are modeling our future assuming virtually stable prices over the next twenty years. Even with an increase in fracking, their overreliance on cheap natural gas is unrealistic and unwise. Putting all our eggs in one basket could prove costly. If, more likely when, natural gas prices spike, the ratepayers of Louisiana will be gouged, while the utility, who isn’t responsible for paying for fuel, would remain unaffected. The smart investment is in a diverse portfolio of generation to hedge against volatility in the fossil fuel market.
Fossil Fuels Vs. RENEWABLES
A diverse generation portfolio should include distributed resources like rooftop solar to allow citizens a choice in their own energy future. Again, the utilities show a bias towards self-built generation. The traditional utility business model, a vertically integrated company providing all generation and transmission, is no longer justifiable. The cost of rooftop solar continues to decline, making it an affordable and attractive investment for many citizens. The utilities should account for their customer’s desire to choose and model a future that includes increased distributed solar resources.
Large-scale renewable energy resources should also be incorporated more fully into the IRPs. Utility-scale solar and wind energy have similarly experienced a dramatic decline in costs. The price of wind today, for example, is roughly a tenth of what it was thirty years ago. Further, large-scale renewable energy has no fuel costs and therefore none of the volatility risk associated with natural gas. Other states in the south are already incorporating large amounts of solar. Georgia Power will purchase or build over 500 MW of solar generation by 2020, and they’re getting it cheap. We are also in a good position to take advantage of wind energy. Louisiana’s power lines are linked with the massive Midcontinent Independent System Operator (“MISO”), a transmission network that stretches from the gulf to Canada. MISO gives Louisiana’s utilities access to large amounts of wind energy from the Midwest. The utilities should use this infrastructure to lock down wind energy at fixed costs to hedge against fossil fuel price increases.
Apart from market fluctuations, government regulation could also alter the economics and make overinvestment in traditional resources imprudent. Legislation and international agreements will require the social cost of carbon to be accounted for in future energy strategies. At least 150 major international companies have already made internal business plans that assume a tax on carbon emissions. ExxonMobil has estimated costs up to $80 per ton of carbon pollution. Additionally, new Clean Air Act regulations require a 30% reduction in carbon emissions from power plants. With carbon tax and reduction mandates on the horizon, investment in energy efficiency and renewable energy is a low-cost option that reduces utilities’ risk exposure to government regulation to curb pollution.
These regulations seek to address the impacts of climate change. It is not just the response to climate change that will cost ratepayers money but the change itself. Rising temperatures will place increased stress on the grid as our already sweltering summers become hotter. Further, as the frequency and severity of storms increases, investment in measures to make our transmission lines more resilient will be necessary. Unfortunately, utilities in Louisiana (and around the country) continue to sow doubt over established science. We cannot afford to have our public utilities keep their heads in the sand on this issue for twenty more years. As climate change becomes a more and more prominent part of the national energy conversation, the pressure to adapt will mount. The utilities should adapt now, while there’s still time.
As a process, integrated resource planning provides a transparent forum for all affected parties to collaborate on an energy plan for the future. As Louisiana’s only public utility consumer advocacy group, the Alliance for Affordable Energy is invaluable to the citizens of this state as their representative in the IRP process. The Alliance champions the interests of the ratepayers of Louisiana and advocates for a plan that selects the best resources for the citizens of the state, not the utilities’ shareholders.