House Democrats recently released long-awaited details on the Clean Electricity Performance Program (CEPP), which they hope to pass as a major climate policy component of the $3.5 trillion budget reconciliation package. But as specifics emerge, it’s clear there’s a lot of room for improvement to ensure the proposal puts us closer to ensuring the most affordable clean energy options are deployed. EPSA has offered guidance on how to advance clean energy goals in a way that incentivizes competition to unlock the greatest benefits for consumers, the environment and maintains the reliability of the electric grid.
Fundamentally, lawmakers should not regress to anti-competitive policies that could undermine a just and sustainable energy transition by forcing American taxpayers to pay steep prices for clean energy when far lower cost options exist. Senator Manchin put it best: why should we pay billions of dollars to utilities to do something they’re already doing as a result of market forces?
We have identified three key opportunities to strengthen the CEPP and deliver voters the affordable environmental progress they want and deserve
1. Require Competition to Secure the Most Affordable Clean Energy Options and Unleash Innovation
Currently, the program grants federal funds to eligible electricity providers – or utilities – to build or buy new clean energy resources. Unfortunately, there is no requirement to procure these resources through a competitive process to secure the lowest-cost option. Without a directive for utilities to buy the lowest-cost clean energy options, the CEPP may leave far more cost-effective alternatives on the table. This will likely squeeze out innovation and puts tax dollars at risk of going to waste, when more clean energy could be added at a lower cost.
We know that competition brings better solutions to the table. Facing no competitors, vertically integrated utilities do not have the incentive to minimize the costs of building and operating clean energy – their only incentive is collecting taxpayer funded subsidies to achieve goals they are already committed to attaining.
In Virginia, where there is no competitive or least-cost selection requirement, one utility told regulators it would need to increase individual electricity bills by $800 per year by 2035 to comply with the state’s 100% clean electricity law.
In Colorado, on the other hand, companies were asked to compete to offer clean energy from all sources. This all-source competitive solicitation delivered record-low prices for wind, solar and battery-storage projects.
America’s corporate buyers of renewable energy – leading drivers of clean energy demand – rely on competition among suppliers to reduce clean energy costs. In fact, 80 percent of corporate power purchase agreements for renewable energy have been inside competitive electricity markets, according to the Renewable Energy Buyers Alliance. Those customers stand to face massive cost increases should the incumbent utility be solely responsible for developing new clean energy resources.
2. Unleash Private Capital and Innovative Financing
Independent Power Producers (IPPs), also known as competitive power suppliers, have led the development and deployment of clean energy resources to date, utilizing innovative tax equity financing to build low-cost clean energy projects with private capital rather than public funds or customer bill increases. IPPs also have a proven track record of better, more efficient project development and risk management relative to traditional – monopoly – utilities.
A poorly designed CEPP that does not promote competition among all potential suppliers to meet clean energy goals could lose out on the tremendous opportunity provided by billions of dollars of available private capital. It would put further long-term private capital deployment at risk and could upset years of innovative financing tools, jeopardizing the future development of clean energy resources.
3. Keep It Simple – and Transformative – With a Price on Carbon
The current CEPP has a significant number of technical elements, timelines, baselines, measurements, and lots and lots of money at stake; $150 billion to be precise. The complexity of the program opens opportunities for potential funding recipients to game the program or get paid enormous sums of money to do what is already part of many companies’ business plans. We suggest that taking the simpler approach might be the better option.
Rather than a detail-slim piece of legislation that creates an administratively complex implementation process, passing a bill with an economy-wide price on carbon would be far simpler. This would result in the lowest-cost reductions in carbon across all emitting sectors, not just the power sector, and eliminate the need for inefficient state-by-state policies and subsidies that drive up costs while doing little to holistically impact emissions reductions. It would also encourage and spur innovation driving new technologies and continue American leadership in energy innovation.
Under an economy-wide carbon price, all owners of non-emitting resources would be compensated for their zero emissions profile and would no longer need out-of-market subsidies. At the same time, a carbon price would ensure that grid reliability is not compromised by allowing all resources to compete to reduce emissions and maintain reliability in the most economic manner.
Most importantly, a carbon price is possible. Senator John Hickenlooper (D-CO) recently argued for the inclusion of a carbon price in the budget reconciliation package. EPSA-sponsored analysis has shown that a price on carbon of just $10 per ton could reduce emissions in the PJM power market by 50% relative to 2005 levels by 2030 – and that’s just in the power sector in only one portion of the country.
Dig deeper in EPSA’s fact sheet, “Economy-wide Carbon Price: The Least-Cost Path to Reduce Carbon Emissions.”
We believe an economy-wide price on carbon could ultimately achieve bipartisan consensus given its ability to address our nation’s growing fiscal deficit. As such, such a policy could well outlive our current partisan divide and actually deliver the outcomes policymakers say they support. Such an approach isn’t even a first-time means to tackle emissions issues. A market-based tool was passed on a bipartisan basis to address SOx and NOx emissions in the early 1990s. Even better, that program achieved higher rates of emission reductions at lower costs than even its drafters anticipated resulting in a greater all-around benefit than anticipated.
While we will continue to push for the inclusion of an economy-wide price on carbon as an alternative to CEPP, below are several additional suggestions we have been actively conveying to Congressional staff to improve the functionality of CEPP:
- Delegate implementation of CEPP in states with restructured electricity markets to FERC through a regional transmission organization (RTO) or independent system operator (ISO) tariff. This would ensure the CEPP is harmonized with existing wholesale electricity markets and provide the opportunity to develop a regional mechanism to facilitate the trade of CEPP credits.
- Establish single baseline compliance obligations for affiliated electricity suppliers. This would facilitate cost-effective compliance by allowing interstate trade of clean energy attributes and also create the opportunity for a regional market for clean energy attributes that could then be traded among buyers and sellers. Additionally, existing voluntary agreements between large corporate buyers of electricity (who themselves are not entities eligible for CEPP payments but represent a significant portion of clean energy demand) and renewable developers could be at-risk. By allowing compliance through the aggregation of attribute credits, entities with VPPAs could use credits obtained from those contracts to offset their load obligations in other states.
- Ensure early clean energy adopters can grow without punishment. The CEPP should recognize that clean electricity suppliers already offering 100% clean energy to their customers should be rewarded in the same way other entities are for decarbonizing the grid.
Don’t Write a Blank Check – Get the Most for Your Money
EPSA believes incumbent utilities should not be insulated from competition; our fear is that a poorly designed CEPP would do just that. Our member companies have demonstrated that they are ready, willing and able to do so – proudly owning, running and investing in some of the market’s leading resources already in operation. Without a clear path for IPPs to continue this good work and participate in the CEPP, Americans will miss out a tremendous opportunity – and taxpayers will be forced to pay more than they otherwise should for new clean energy. Policymakers have made it clear that reducing power generation emissions is a top priority. But they don’t need to write a blank check to monopoly utilities to achieve that goal.
