Most of us don’t give much thought to what happens behind our electric switches. About the only time we pay attention to our electric service is when something is wrong. The fact that we can fly through our busy lives while taking affordable, reliable power for granted is a credit to the many women and men in the electric industry who make it their business to go unnoticed.
But today is a time of transformation and uncertainty in the electric industry. Changing consumer sentiment, new energy technologies and a regulatory focus on cutting carbon-dioxide emissions mean that electricity is going to be in the spotlight for the next decade as we adapt to these new challenges.
Consumers are becoming more and more accustomed to having a wide array of options. A decade ago, in many parts of our state, if you needed a hammer, there was one local store that had one kind of hammer. Today, that local store competes with big-box stores and the Internet, and the choice of hammers is vast. We know that consumers are more accustomed to options and they will look for new and different product offerings that fit their lifestyles.
As the price of new technologies falls, consumers may demand new ways to generate, save and store electricity. The previous decade has seen a huge drop in the price of alternative-energy technologies like plug-in electric vehicles, solar panels and super-efficient LED lighting. The next decade is sure to bring continued technological innovations that will one day make a host of cutting-edge energy options available to consumers at an affordable price.
Simultaneously, policymakers at the state and federal levels are concentrating on cutting carbon-dioxide emissions. Their willingness to put public policy and public dollars behind efforts to further incentivize the development of technologies and products, even to the point of leveling technology costs with subsidies, is more likely with each passing year.
As these dynamics drive change within the electric industry, it becomes clear that making wise decisions now will be critical to bringing more value to co-op members. Among the most important things cooperatives do to bring
value to their members is work to ensure that state and national policy decisions are good for co-op members. As we head into 2015, two issues are likely to have far-reaching consequences.
Distributed Energy Resource Program Act
Renewable energy generally means electricity generated by natural forces such as solar or wind power. Those resources are referred to as “distributed” when they are located where they are used on the electric system, such as on the roof of a house, rather than at a centralized location.
Renewable energy poses unique challenges to system operators. Consumers demand reliable, on demand electricity 24 hours a day, seven days a week. But wind and solar power are intermittent, only generating electricity when the wind is blowing or the sun is shining. This is an issue for both large-scale, centralized sources and distributed sources. Second, many forms of renewable energy are not dispatchable, meaning that you can’t turn them on when you need them—you need to wait for the sun to shine or the wind to blow. Finding the right mix of these resources and integrating them into a reliable 21st-century power grid are among the challenges facing the industry.
The South Carolina General Assembly took an important step to expand consumer access to renewable-energy-generation technologies when it passed the Distributed Energy Resource Program Act.
The law, also known as Act 236 of 2014, seeks to solve two of the biggest challenges to integrating distributed renewables into the power grid—how to allocate utility system costs fairly among all co-op members and how to value the price of electricity produced by DERs.
Current rate structures include a significant portion of the fixed costs of maintaining the utility network within variable kilowatt-hour charges. Those variable charges are based on average consumer-usage patterns. If distributed generators’ usage departs from the average—for example, by consuming too little electricity—they underpay for their relative share of the fixed costs to serve them. This means that under current practice, people without DERs could be paying the tab for their neighbors with DERs.
Second, when excess electricity is fed back into the grid, it is currently purchased at the full retail electric rate. That rate includes much more than just electricity. It’s structured to also cover the cost of poles, wires, maintenance and reserves. We know that the excess electricity sold back to the system does not include these other resources and is therefore not worth as much. In fact, as of this writing, we don’t know exactly what that excess electricity is worth in South Carolina because that issue is still being studied.
Act 236 seeks to address these issues in a way that continues to promote the vitality of the solar industry. After many months of work among a large group of stakeholders, including electric providers, environmental advocates, solar businesses and public officials, a compromise proposal was reached, and the bill passed without a single vote against it. Act 236 has four key provisions:
- It requires distributed generation to be accurately valued and requires rates, including those for net metering, to reflect that value.
- It allows entities other than utilities to lease distributed-generation systems to consumers, which makes it easier for consumers to make choices based upon market conditions.
- It requires that premiums paid for renewable generation be spelled out clearly, instead of being hidden in aging rate structures, and sets a yearly cap for any extra amount that ratepayers might have to pay to maintain a renewables market in South Carolina.
- It requires an analysis of how rate structures and cost recovery should change in the future to keep the grid healthy while accommodating increased levels of distributed renewables.
The work on Act 236 is only just beginning. The regulatory process to determine the value of renewable generation, and how to properly apportion that value throughout the grid, is ongoing and could last until March of 2015 or beyond.
South Carolina’s electric cooperatives will continue to lead in the development and integration of renewables, both distributed and central-station, according to principles important to our members:
- Energy should be valued accurately and fairly.
- Any amount paid above the value should be clear and transparent.
- Policies should promote as much flexibility as possible in order to empower members and innovation.
- Rates should, as accurately as possible, reflect the benefits and costs caused by members to the system and minimize unfair cost shifting among consumers.
EPA Clean Power Plan
On the same day the governor signed Act 236 into law, the U.S. Environmental Protection Agency released its proposed regulations under section 111(d) of the Clean Air Act. The regulations were touted to produce a 30-percent reduction of 2005 carbon-dioxide emissions by 2030.
Upon hearing this goal the day before the release of the regulations, many within South Carolina’s cooperative leadership were excited; they knew that South Carolina’s cooperatives had already taken steps to drastically cut carbon-dioxide emissions. Unfortunately, the actual regulations looked much different than the sound bite that played in headlines and newscasts across the country.
Upon examination of the proposed regulations, the harsh reality of EPA’s rules began to sink in. The base year was not 2005, but 2012, and South Carolina—which had already reduced carbon-dioxide emissions by approximately 30 percent—was going to be required to reduce them by another 51 percent by 2030. Our state’s physical carbon-reduction target was the highest in the nation.
The EPA plan used a set of assumptions called “building blocks” to determine each state’s reduction target. But many of the assumptions applied to South Carolina have nothing to do with our state.
Switching to natural gas. EPA assumes South Carolina utilities will build new natural-gas-fired power plants to meet our carbon-dioxide reduction targets. This calculation fails to account for the fact that the interstate pipelines serving the state are fully subscribed. Any new natural-gas plants in our state would require a costly build-out of additional pipeline infrastructure.
Renewable energy. The assumptions about renewable energy in South Carolina are based entirely on the fact that North Carolina has a 10-percent renewable portfolio standard. No further study, analysis or investigation was used to set this goal. In addition, the EPA’s renewable energy target excludes biomass production, which is something that South Carolina has in abundance.
Energy efficiency. South Carolina’s cooperatives have led the nation in establishing new and innovative ways to implement energy-efficiency improvements to homes and businesses. But even with this aggressive and innovative program deployed at full steam, it would only accomplish about half of the 1.5 percent annual energy savings rate proposed by the EPA.
Under-construction nuclear. Of all of the defects in the EPA’s proposal, one is especially egregious. South Carolina has been at the forefront of generating carbon-dioxide-free electricity from nuclear power for years and, in 2008, sought to address potential carbon restrictions by investing even more in nuclear power for the future. Two new nuclear units are under construction in Fairfield County and are scheduled to begin generating power in 2018 and 2019.
Astonishingly, the EPA wants to treat these still-under-construction nuclear units as if they are already producing power. By structuring its assumptions this way, the EPA more than doubles South Carolina’s carbon-dioxide reduction target. Unless this building block is revised, South Carolinians will pay twice for carbon-free generation. Instead of being rewarded for proactively cutting emissions, our state’s consumers will be penalized to the tune of approximately $8.7 billion under this building block alone.
Cooperatives are working with the South Carolina congressional delegation and EPA officials to make sure the agency understands the heavy burden it has laid at the feet of energy consumers.
With your help, we also spearheaded a grassroots initiative that, at the date of this writing, has sent more than 180,000 messages from South Carolina to the EPA expressing concern with the agency’s proposal. Co-op communities have taken this effort to heart and produced a level of engagement unrivaled throughout the United States.
Cooperatives also joined with environmentalists, power providers and state regulators in an effort led by the South Carolina Department of Health and Environmental Control and the Office of Regulatory Staff to produce a set of comments that were, to the greatest extent possible, a consensus view of how the plan could affect all South Carolinians.
The final EPA Clean Power Plan is scheduled for release in June of 2015, and co-op members may once again be asked to make their voices heard. While it remains unlikely that a legislative solution to these issues could survive a presidential veto, congressional action remains a possibility.
In the interim, cooperatives are working with other stakeholders to develop a state implementation plan. While the reduction targets are set in Washington, implementation will occur at the state level. For cooperatives, flexibility will continue to be key to meeting EPA goals while providing consumers reliable, affordable electricity.
You can be proud that South Carolina cooperatives are at the forefront of the innovation on energy efficiency and development of renewables in South Carolina. After years of partnering with Santee Cooper on its Green Power program, which sells blocks of renewable generation to interested members, the co-ops and Santee Cooper again teamed up to build the state’s first solar farm in Colleton County in 2013. This state-of-the-art facility is a test bed for utilities to better understand how to cost-effectively integrate cutting-edge technologies into our systems.
This follows a nation-leading effort on energy efficiency that was so successful it was endorsed by both the U.S. Senate and the U.S. House—no small feat these days. South Carolina’s Help My House project was the model for the U.S. Department of Agriculture’s Rural Energy Savings Program.
South Carolina co-ops are fighting in Columbia and Washington, D.C., to protect the pocketbooks of our members, while doing our best to secure a clean environment and a prosperous economic future for the next generation. These goals are not mutually exclusive, and the examples above offer a small window into how South Carolina’s electric cooperatives are working hard to make sure your electric system is positioned to bring you maximum value well into the future.