Listen here.
Publish Date: April 28, 2021 | Total runtime: 43:06
Guests:
Arne Olson, senior partner, Energy + Environmental Economics (E3)
Tom Rumsey, senior vice president, external and regulatory affairs, Competitive Power Ventures
Host: Todd Snitchler, president and CEO, Electric Power Supply Association (EPSA)
TRANSCRIPT
Todd Snitchler: The world just celebrated the 51st Earth Day – putting our environment and a cleaner energy future at the top of mind. But how fast can we build a cleaner power grid? And what will it take—and cost—to get there?
This is Energy Solutions, a podcast from the Electric Power Supply Association, where we unpack the stories and trends behind America’s changing electric grid. I’m your host, Todd Snitchler, EPSA’s president and CEO.
There’s still more work to be done but we also have a great story to tell so far—emissions from the power generation sector have dropped rapidly over the past decade. The Lawrence Berkeley Laboratory recently announced that the U.S. power sector emissions are just half of what they were projected to be 15 years ago. And competitive power markets across the United States continue to show decreasing emissions every year.
Now, the Biden Administration and others have set ambitious targets to cut emissions in half by 2030. And many are targeting a net-zero future.
In this episode, we’ll talk with guests who know what it takes to reduce emissions at the least cost possible to consumers—and without risking the reliability of the electric grid or our power supply. It’s important to allow companies to compete to provide solutions— and not just lean on regulated utilities who pass those costs on to consumers.
Our guests are working to provide solutions that work for our environment AND our economy—and most importantly, customers—as the grid transitions.
Arne Olson is a senior partner at Energy + Environmental Economics, or E3, a consulting firm that helps policymakers understand the costs and pathways to achieve decarbonization goals.
You’ll also hear today from Tom Rumsey. He’s a senior vice president for regulatory and external affairs at Competitive Power Ventures, or CPV. CPV is an EPSA member and a competitive power firm working to invest in and build new low-carbon and renewable resources—while providing reliable electric generation today.
Arne Olson and his team worked with EPSA to find the best path to reduce carbon emissions in the PJM Interconnection footprint—which covers 13 states and the District of Columbia. E3 found that keeping the process competitive and fuel-neutral could unlock not just big emissions reductions—but also big savings for consumers and help ensure reliability. Putting a price on carbon or even applying a well-designed Clean Energy Standard in PJM could save consumers $2.8 billion annually while reducing emissions 28% by 2030. You can find that study on our website at www.epsa.org.
I asked Arne to share more about his work and how it can inform smart policy decisions on decarbonization.
[To Arne] In your view, what’s a smart transition look like?
Arne Olson: Yeah, that’s a great question. And I guess, for me, for us, it really stems out of the fundamentals-based modeling that we’ve done that looks long term at the types of institutional and infrastructure transitions that are needed to meet those really aggressive goals.
But for the next 10 to 15 years, I think all the studies agree that we should build out as many clean energy resources as we can. So, accelerating the development of wind and solar, in particular. Those are mature technologies that have very low-cost sources of energy.
Then, at the same time, we need to do a lot of R&D on what the next generation of technologies would be, and once we kind of run out of the ability to absorb more wind and more solar and have that be a real strong asset in terms of decarbonization.
So, wind and solar can get us to 60, 70, 80% carbon-free electricity nationwide but there’s more technologies that are needed to get from there, all the way to 100%.
And those would be things like, you know, nuclear or fossil generation, with carbon capture, very long duration storage, hydrogen. Other types of firm technologies that can provide zero carbon energy during times when the wind isn’t blowing, and the sun isn’t shining. So that’s number two.
Now the number three part of what I would call a smart transition, is that we have to recognize the electric sector is only a share of U.S.-wide carbon emissions.
It’s going to be asked to play a large role in decarbonizing the other sectors through electrification of transportation and building sector demands. So, we need to make sure the electricity sector is set up to do that. That needs to be an attractive economic proposition. For customers to want to adopt electric vehicles and heat pumps in their homes. So, we need to make sure that we’re not putting too much pressure on electric rates too early on as part of the transition.
And then the fourth thing that I think has come into starker relief due to recent events is just the need to make sure that our transition is reliable. So, we need to make sure that we have firm capacity available in the near term that’s as low carbon as we can make it. But that can turn on to keep the lights on, for the next 10 to 15 to 20 years before we have a zero-carbon source of firm capacity. And so, to me, that means continuing to invest in the nation’s fleet of natural gas-fired power plants and the infrastructure that brings fuel to those plants reliably.
Todd Snitchler: As you’ve done a lot of work—and you didn’t mention it, so I’ll do it for you— but you have done work in the Pacific Northwest and in New England and across PJM and among other places around the country and the world.
As you look at those studies and the work that you’ve done, what do you think we can achieve both in terms of emissions reductions and cost savings in the regions? And I would add a corollary to that which, of course, you mentioned a moment ago, which is affordability. You know, we want to ensure reliability. It needs to be affordable. And we’re trying to achieve some of these significant emission reduction objectives. How do you piece that together, or what are the mechanisms that you think make that possible?
Arne Olson: So, you mentioned the regional issues or the regional systems. I’ll just note at the outset that, you know, that’s kind of how we view the nation’s power system.
I mean, yes there’s one Eastern interconnection and there’s one Western interconnection, but, you know, we think largely it’s useful to think of them as a series of connected regional grids. So, you’ve got, ISO-New England, obviously is a single market operator. PJM is a region that spans multiple states. MISO, SPP, the same way. You know, California is a region unto itself. And there’s the desert Southwest and the Pacific Northwest, which are their own regions. So, we tend to think of it as—start with a regional grid and figure out how you can— what you can do with that regional system.
So, a couple lessons, I guess, that we’ve drawn from that—one is that, today it’s really interesting that everywhere we’ve done these studies, even in the Northeast, that renewables are now the lowest cost source of clean electricity.
And that wasn’t the case you know, maybe five or 10 years ago, so it really speaks to how far those industries have advanced. And even solar is an attractive resource in a lot of the northern climates. So that to me is really new and interesting and opens up a whole lot of possibilities.
So, with that, as a potential building block, we find that each of the regions can achieve pretty significant carbon reductions at a reasonable cost. And when I significant, you know 40, 50,60, 70% and then some regions, maybe even 80 or 90%. The Southwest in particular—great solar. Some pretty good wind. The load lines up pretty well with solar production, so you can get a lot farther there. The central Midwest as well.
The Northwest is a little bit more geographically constrained. If you look at where the load is in the Northwest, it’s all in the I-5 corridor. So, there are some issues with how you deliver the energy over the mountains into those coastal load centers. When you start to get into the Northeast, it starts to get harder. You know, the curve it gets steeper earlier. And particularly in New England—very geographically constrained.
Todd Snitchler: Right.
Arne Olson: You have to go to offshore wind pretty early on, as a primary scalable source. So, to summarize, I’d say that you can achieve significant carbon reductions everywhere, but the cost curves don’t look the same. And so, there are real regional differences in the cost of achieving—especially deeper—emission reductions.
Todd Snitchler: A couple of the tools that people talk about frequently with regard to achieving those objectives are either a carbon price, or now it’s become far more popular to evaluate the efficacy of a clean energy standard.
Can you talk a little bit about how those mechanisms work and how they might work regionally—or frankly, nationally, of course I think we’d probably agree would be the best approach—but given the political limitations, how do you see those working on a regional level?
Arne Olson: Yeah, I think everyone who looks at these types of these issues, from an economic perspective, sees the carbon price as the way to leverage the most efficient and lowest cost carbon abatement measures. You know, which isn’t to say that the carbon price by itself is the answer, or the only answer. You know, we think there need to be a lot of supplementary policies to help unlock the infrastructure development that’s needed, but as the centerpiece, as the signal for what’s the value of carbon reductions, there really needs to be a national price.
It needs to be multi-sector so that you can trade off abatement measures in the electricity sector versus buildings, and versus industry, and versus cars and heavy trucks. I mean there’s no reason why they all shouldn’t be facing the same carbon price. You know that requires obviously a fair degree of political consensus at the national level for what that value ought to be.
Todd Snitchler: Sure.
Arne Olson: And we’re a long way from that now. So, the challenge is, how do you put in place structures that enable the states, and local governments, and corporations and individuals that want to start doing their share to do so in a way that’s efficient and helps move us along toward that long term goal?
And this is where state-specific carbon pricing is really challenging, because it creates the challenges with leakage. So, what you might see is just migration of carbon intensive activities outside of the boundaries of the state that has a carbon price and towards the state that doesn’t have a carbon price.
And electricity, it’s electricity generation. If a state with gas plants has a carbon price, those gas plants will run less, and you might see coal plants in a neighboring state run more. So, you might actually end up with increased carbon emissions from state-by-state carbon pricing policy.
Todd Snitchler: Right.
Arne Olson: So, the states have tended to gravitate more towards clean energy standards as a mechanism that just lines up better with the with the limitations of state jurisdiction. The states have strong jurisdiction over their electric utilities.
This really is a policy that’s aimed at the procurement activities of those electric utilities, requiring them to procure clean energy.
So, the states have a lot of leverage there. They can really design policies that can be effective at bringing clean energy onto the system in a way that doesn’t create some of the negative externalities the leakage issues that are stable state carbon pricing.
Todd Snitchler: And I think you’re—and correct me if I’m wrong—but I’m fairly certain that all of your analysis has demonstrated, regardless of region, that a well-crafted clean energy standard can have almost the same effect on emissions reductions at roughly the same cost and roughly—I mean very close together, not a standard deviation or a wide disparity and cost—but they’re actually fairly close if they’re designed well. Did I get that right?
Arne Olson: Yeah, that’s right, yeah exactly. So, if you—it’s possible to design a clean energy standard that that achieves the same goals. It provides the same economic incentive to new zero-carbon source like wind and solar and it provides the same incentive for existing zero carbon—existing carbon emitting resources to change their dispatch based on the carbon intensity of their fuel.
And the trick there is, you know, a clean energy standard might be one where every megawatt hour of clean energy that’s generated gets a REC (renewable energy certificate) or a clean energy certificate.
That’s how the existing renewable portfolio standards work state by state today. But if you could supplement that type of a policy with one where a gas generator would get partial credit for operating more and displacing coal generation, that’s the secret to how to make that policy look a lot like a carbon tax.
Todd Snitchler: Got it. It seems counterintuitive to some folks, but I think your analysis finds that existing natural gas resources and even new natural gas will be needed to reduce emissions. Can you explain that a little bit? You’ve touched on it a couple of times here, but can you walk us through your analysis and how you arrived at that conclusion?
Arne Olson: You know I would just start—there’s really two planks, I guess, that I would talk about. So, one of them is that there are a lot of gas plants today that aren’t running at anywhere near the maximum capacity factor. And there are a lot of coal plants today that are running a lot of hours. And every time a gas plant runs, and a coal plant doesn’t, you get a carbon emission savings.
Now, what exactly that savings is depends on the heat rate of the gas plant and you know, and there may be some upstream methane issues that you might have to take into consideration, but it still is a benefit. And that’s a benefit without having to make any capital investment at all. It’s just changing the dispatch order of existing plants.
So that to me, is a very low-cost way to make a lot of progress in the near term at reducing generation from the most carbon emitting source that we have, which is coal.
Todd Snitchler: Yup.
Arne Olson: So, there’s one piece. The other piece is that, you know, it’s back to the question about reliability. That we need to have resources that—what we call firm resources. Resources that can turn on when you need them to run and run for as long as you need them to run, to keep the lights on. And as wonderful as wind and solar are at providing lots and lots of megawatt hours of clean energy—and they can be dispatched very precisely, you know they’re very, very flexible resources. The one thing that they can’t do is run when the wind isn’t blowing and when the sun isn’t shining.
So today, and into the future, we will need resources that can fill in during the times when the wind’s not blowing and the sun’s not shining. And today the only choice that we really have for that is natural gas.
I think we all are looking forward to the day when other sources of clean, firm energy will be available, but that’s a transition. So, we’ll need to rely on the existing fleet of gas generators until those substitutes are available.
So, the thing is, you can have both a low carbon and a reliable electricity system with lots of wind and solar to give you lots of energy throughout the year, and just enough gas generation to turn on when you really need it.
Carbon is all about the area under the curve. So how many megawatt hours of energy are you delivering throughout the year? That’s really—carbon is all about every hour of the year. The peak only happens a few hours of the= year. So even if you had to meet all of your peak with carbon-emitting resources, if it’s only a hundred hours of the year, it’s just not that much carbon. So, we need to think of meeting our peaks as a separate goal than incenting clean energy resources to come online that can run throughout the year and reduce carbon emissions from existing emitting resources.
Todd Snitchler: I guess I’d ask you to answer the question looking at today, and then looking at—you pick your time horizon—but is it possible to have a grid that runs on 100% renewable energy?
Arne Olson: I would say—I would call it impractical to infeasible today. You know, again, you need wind and solar, other forms, hydro, you know, nuclear resources that can run throughout the year.
You need enough resources to turn on when you really need them the most. And that’s what doesn’t exist today.
Todd Snitchler: Right.
Arne Olson: So, what we need, again, is one of these breakthrough technologies—and you know there’s biomass today, so but maybe there’s some of that that you could do. There’s some geothermal that you can do, which would help in that regard. With the breakthrough, then you start to think about a 100% renewable grid. But with just wind and solar, you know, and hydro and geothermal, that’s, you know, impractical to infeasible today.
Todd Snitchler: Right, which just speaks to the need for innovation. Which of course our members, and the EPSA family, very much are interested in deploying innovative technology sooner rather than later, because those are where they end up being able to participate actively in the market.
Are you hearing or seeing other things or areas that pique your interest that help us advance the objective and toward that cleaner energy future?
Arne Olson: Well, it’s a really exciting time to be in the industry, I have to say, with how many different types of technologies are out there. We’re fortunate to be in a place—both geographically in California and trying to push the envelope—but then with the work that that’s enabled us to do, looking as far into the future as we can, what these future goods will look like. A lot of people come to us with their technology, and we’ve looked at hydrogen, small modular nuclear reactors, we’ve looked at [carbon capture storage] CCS, various different storage technologies, pumped hydro, batteries, long duration batteries. We’ve looked at these advanced rail car storage. Theres’ a group that hollows out bedrock and uses water to compress air into those bedrock cavers, so it’s a form of compressed air storage. You name it, we’ve looked at it. So, it’s exciting.
A lot of these are new, so people are looking for feasibility studies to say, “How would my technology fit into the low-carbon grid of the future?” So, there’s a certain type of company that starts up and looks that far out. I’d say the larger developers are mostly looking at the near-term opportunities—there it’s a lot of solar, batteries today, it’s a lot of wind and it’s a lot of transmission.
Todd Snitchler: What should regulators or policymakers – that’s state or federal, so an equal opportunity answer, I suppose—what should they be keeping in mind when we look at how we want to see investment that supports reliable, affordable, cleaner generation? Are there certain things that you say to a regulator or policymaker, “Keep these things in mind, because it will help you achieve your objectives and ensure that consumers get what they want?”
Arne Olson: Yeah there’s a few lessons that I think are general that if I were to try to sit down with a new utility commission, one-on-one, for example, I might say something along the lines of what we’ve been talking about, which is you know—wind, solar, very low-cost forums of clean energy, they need some existing technologies and need natural gas, really, today, to help them provide around-the-clock reliable energy that, as we discussed, that consumers need.
I might talk a little bit about regional markets and the way that they help you to achieve diversity and scale. A small utility with a limited geographic service area just can’t, doesn’t have a lot of diversity on its own, its problems are harder to solve by itself than if it’s part of a bigger regional system where, you know, if its loads are up, maybe somebody else’s loads are down and its generators are offline, maybe its neighbors’ generator is online so there are a lot of benefits to being tied to and embedded within these big regional markets. So, emphasize the whole variety of benefits that that provides.
Todd Snitchler: What do you think is needed going forward to enhance wholesale power markets, and whether that’s PJM or nationwide, and do you see a future for capacity markets?
Arne Olson: Especially after having seen what happened in ERCOT this last year, you know, I was always curious to see if this sort of energy-only construct would be durable or not. I’m less convinced that it’s durable after having seen the events of this winter, but I think we see a need for a capacity construct everywhere. You know, in Oregon, places where there are capacity markets that are already kind of centralized and organized, we think those work well. I don’t think that’s the only model.
The bilateral model that we have in California—it has some issues, I think it needs some shoring up, but I think it can work. And then SPP and MISO are kind of, you know, halfway in between.
And if you have, you know, a system with a lot of vertically integrated utilities, we think that can work. But yes, we think you need you need a capacity construct that focuses on capacity, that doesn’t try to mix in any other issues that aren’t reliability related, that’s your backstop to make sure that you have the capacity that you need to keep the lights on. And that really should be priority number one for everyone who’s, you know, governing, operating, investing in one of these utility systems.
Todd Snitchler: How do you see it from your seat -how can we make sure a competitive power has the ability to continue to deliver benefits to customers and the grid?
Arne Olson: So again, we work in a lot of places where there’s, where we don’t have this benefit of the centralized markets, and it’s a lot harder there, I have to say. So, the more that we can do to extend the RTOs into the parts of the West where they don’t exist today and the parts of the Southeast where they don’t exist today, I think that will be a huge benefit to the utilities and the customers in those regions.
But then, even within those regions, I think the more alternative choices there are, the more competitive pressure that puts on utilities. So that even if they end up with, you know, they’re still vertically integrated and they end up building their own resources, at least there’s been some competitive pressure to make sure that they’re doing that cost-effectively.
Todd Snitchler: Right.
Arne Olson: But everywhere where there’s an active IPP sector, we see that really benefiting electricity consumers because it helps to keep the utilities honest.
[Music transition.]
Todd Snitchler: E3’s work shows what’s possible—and provides valuable data for policymakers and voters as we decide how to manage the energy transition.
But how does someone who actually operates and develops power generation in the competitive markets plan for a cleaner grid?
Here’s Tom Rumsey, senior vice president of external and regulatory affairs for Competitive Power Ventures. Before joining CPV, Tom was the senior vice president of external affairs at the New York Independent System Operator.
CPV has invested $7.2 billion in major energy facilities over the past decade. Today the company manages 37 major power facilities that in total can provide 7.9 GW of generation to the grid—from resources including natural gas, wind, geothermal, coal, and biomass.
Tom works to communicate with regulators, energy markets, policymakers and the public to help CPV bring new, low-cost projects to power America’s grid.
I asked him to share some of the new things CPV is working on and what’s needed on the political and regulatory front to keep encouraging companies to innovate. He says the competitive markets and a passion for progress drive CPV to keep its eye on the future. Here’s Tom.
Tom Rumsey: At the core at CPV, we’re a little under 100 folks that are just power people. We are not tied to specific technology; we’re not tied to a specific direction other than we want to see a lower carbon future at an economic cost that maintains reliability. And that’s a pretty exciting place to be. We aren’t weighted down as some with the balance sheet of assets that we’re trying to maintain some level of profitability for. We’re truly trying to modernize the power system. And my team supports that by trying to advocate for market design structures that will support independent power producers like ours, being able to get private capital to animate the visions a lot of us have a lower carbon future.
We were literally started 20 years ago by two gentlemen that stepped away from the former model and said, “Look, in a competitive market world, we can develop projects, we can do this with private capital, we can make individual project stand on their own.” And I think that’s important. Every project is a standalone entity, it has to, it has to survive in the market in which it operates, and that truly drives discipline investment, which is just critical.
If you look across how the world has tried to green itself, you can point to a number of examples where the investment was made, but it wasn’t as disciplined, and you didn’t get the result. We’ve invested over 7 billion in the last 10 years alone, and if you’re going to invest with private capital, you got to do it with technologies that are being rewarded in the market. So that’s been natural gas, it’s been wind and it’s been solar. And we’re starting to see a stronger focus more on the renewable side, with the increased desire to decarbonize the entire economy. But also, you’re seeing private companies move forward and be willing to put money on the table to develop real projects where there are market gaps and, in our view, there are market gaps.
You know, that’s one of the great parts with being with this company is, you know, when hydrogen is ready, you’ll know when hydrogen is ready as a technology because we’re going to be developing. We’re not wedded to a technology; we’re wedded to growth, and that’s what makes it exciting to work and CPV.
Todd Snitchler: Tom, you mentioned that CPV is in the development business. If I were to ask you, “Tell me three projects that you’re working on right now that you’re particularly excited about,” what would those be?
Tom Rumsey: Well, I would say, one is, you know, we’re in construction in Illinois with a new combined cycle plant that we developed and were able to get financial flows in during the pandemic, which was an incredible achievement. So that would certainly be one, and I think the other, I would combine a couple projects in PJM. Two solar and one wind totaling over 400MW. This is, you know, in a pretty hotly debated regulatory environment in PJM, but we were able to move forward and finance three projects that are being constructed on former coal mines.
And that’s just a great story, I mean those are communities that need the investment. It’s part of the landscape that isn’t going to be used for a lot of other things, you know, being a former coal mine. And being able to put solar panels or wind turbines up in areas that would otherwise just remain there, brownfields, is a great story and markets drove that. And that’s pretty exciting for us, because it goes beyond just talking about how we’re going to build renewables. We don’t see a lot of headwinds to good projects right now. If you have a good project and located in an area that you can manage your interconnect costs, there’s money for that. There are people out there willing to fund and build those.
Todd Snitchler: You kind of led me into my next question so, how does CPV plan for the lower carbon grid. I mean, what is it that you’re doing that helps you position the company or the organization to be ready to lean into that environment, because it looks like that’s where we’re headed, whether it’s through policy choices at the state or federal level, whether it’s regulatory decisions, or frankly, public sentiment, that seems to be the direction that we’re going. So how are you as an organization leaning into that?
Tom Rumsey: And I think that’s, I think that’s the case, I think its global, and you know, we’re no longer arguing whether or not you should decarbonize. The debates are now around how. And our view is, if you can make it in a competitive framework -I mentioned carbon pricing, pricing carbon in the wholesale energy market, clean energy standard that’s competitive. All those things, and then allowing older resources to retire. If those things occur, you’re going to see private capital really animate and drive this, this growth. And that’s where we play.
We see the natural gas and the renewable projects working well together, because the one thing we can’t lose sight of in all of this, no matter how much we want a certain outcome, is reliability. And you’ve seen, unfortunately recently, just how devastating the way it can become when you lose [power], people die. And we can’t ignore the technology limitations we have today.
No matter what we would like to occur, we’ve got to work with the technologies we have, and fortunately, we have some great ones. I mean, natural gas is extremely efficient these days, uses much less fuel than even 20 years ago, 10 years ago, and it matches very well with renewables.
Todd Snitchler: So how do we, how do we look at a world where we’re trying to decarbonize but you’re using the forces of competition to deliver those results. Because there are other voices that would say, “Just trust me, we’ve got this figured out, we’ll be happy to build it. “Don’t worry about the cost, you’ll end up paying for it,” Where your business model is completely different. How do you marry those two thoughts together?
Tom Rumsey: Well, it’s, I think at some point, you don’t, unfortunately. I think there’s the command and control that says we want to build exactly what we want to build it, and we’re going to go build it. Well okay. If that’s how you view the progress of the energy market and grid, then it’s tough to have competition to do that for you.
You know, competitive markets that were designed for low-cost, reliable power have delivered in spades on both those. You can’t argue that, and they’ve done it better, faster, cheaper and you’ve seen this transition from coal to natural gas and lower carbon based on economic forces within the competitive market structures that you’ve not seen in the vertically integrated markets. It’s not been the same.
So, if you want to incentivize a lower carbon future, then you put a price on carbon and you let people compete and that unlocks a lot of things. We’ve got great relationships with manufacturers -Siemens and GE. And if we go to them and say, “Look, we need lower carbon, lower emitting resources,” because that’s how we could compete to win, then they’re going to spend R&D money on that for us.
So, it drives the R&D, it drives the innovation, it drives the disciplined investment that you can only have with competition. And without competition, then you are simply trading that for command and control, which, you know, if you’re going to do long-term contracts today, that’s market share that’s not available for new technologies in three years.
Todd Snitchler: Right, and you mentioned the difference in the vertically integrated model versus that competitive model, and one of the things that we’ve seen creeping even into the competitive jurisdictions is subsidies and one-off payments that have the impact of distorting the market price and making it harder for entities like CPV to do what they do.
How do you view the impact of subsidies on development or bringing lower costs, lower emitting resources to market at a pace that you could do if there weren’t subsidies that were impacting your business decisions?
Tom Rumsey: That’s a great point-it’s probably the hardest question I ever get is, you know, “What about subsidies?” because it means – at the beginning, I mentioned, you know wholesale energy, carbon pricing and a clean energy standard, and allowing resources to retire.
That third bullet is probably the most challenging because, who wants, you know, what governor is going to preside over large losses in tax base?
And that’s what happens when facilities retire, but you have to let them retire. Subsidies don’t just maintain an older on economic resource. They suppress energy prices, they suppress prices in the markets, and that keeps newer investment from coming in.
Todd Snitchler: Sure, and that leads to, you know, the next logical question is, that is, what do you need from regulators or policymakers that will enable you to make those investments? As you and I were talking before we started, you don’t make a two-year investment in this industry, you make a 30-year investment.
Tom Rumsey: So, you said regulators and policymakers. I’m going to take them as separate groups.
Policymakers, I would say, courage. Courage to work across the aisle to come up with answers that will work. In our, in our view, that means, how are you going to spur R&D, innovation and competition – not simply paying for what’s on the shelf today.
And in our view, that’s again carbon pricing, putting a price on carbon, a clean energy standard. And it’s providing legislation that helps dis affected communities transition away from old technologies.
That’s the policy. On the regulator bucket, I would say, probably the biggest thing we could ask you to do is leave your politics at the door when come into the office in the morning, because we can’t allow policy to outpace technology and the capability of what we can do today. And regulators – own reliability and having a clear-eyed vision of what’s technically possible while pushing the limits, absolutely, but maintaining the market structure where we can continue to invest. We can’t have the regulator community move at the same pendulum swing that the political world can at times, right.
The regulatory community needs to be more politically-agnostic so we can make 30-year investments, so we can have, you know, a level of certainty. I think sometimes when people say regulatory certainty, they mean don’t change anything ever. That’s not at all what we’re saying. It’s, be pragmatic, be based in law, be based in facts, be based in reliability, and understand that competition will bring better, faster, more economic results than command and control.
Todd Snitchler: So, what would you say is needed going forward? What’s needed to enhance the wholesale power markets, and I don’t just mean in PJM but, as you look at all the markets around the country and then, if you were king for a day, what future would you see for capacity markets?
Tom Rumsey: Well, that’s a short answer for all that. I guess, I think the first thing would be to understand that we’re all in this together. I mean, I think perhaps for the first time, everybody really does have the same goal trying to decarbonize our economy in a way that we can afford, maintains reliability and truly does start tackling climate change.
Now, once we agree on that goal, we may have different views on how to get there, but it isn’t like we’re arguing whether or not we should even head down that path. It’s a matter of what’s the speed limit sign. That’s all we’re arguing or discussing these days.
Now obviously somebody that relies on private capital and technology, innovation like CPV is going to have a different view than a vertically integrated utility that has a region that they basically have a monopoly-they’ll have a different view. But that doesn’t mean we can’t come together and develop a system that will work.
I’ve mentioned several times, using markets to get there. Pricing the results that you want like a carbon price, a clean energy standard, so the technologies that are coming in can meet the profiles of what you want moving forward. We’re not going to solve tomorrow’s challenges with today’s technology. We need innovation.
In terms of capacity markets, to be honest, I think we need to morph that into a reliability market and simply say, “What is it we need out of assets to keep the lights on?” Dispatch ability, flexibility duration, those types of things that independent organizations like ISOs, RTOs, develop whatever the reserve margin is, solve for reliability, and it is what it is, I mean at that point they have to procure the amount of power needed to secure the grid, and if that gets politicized or if thumbs get on the scale there, then you start seeing the inability to keep the lights on, and that’s just not an acceptable outcome.
Todd Snitchler: You talked about it a couple of times, so let me just ask you clearly so that you can, you know, kind of give the company line, so to speak, but CPV supports carbon pricing. Why?
Tom Rumsey: Because it’s technology-agnostic. Because it allows anybody to come in with the right technology at the right place to solve the problem that the power system has. And that’s where we think we can compete, but I think broadly it brings disciplined investment.
If you put a price on carbon, then you’re going to get private research and development, you don’t have to just rely on the national labs.
You’re going to get new technologies coming in. You’re going to speed the pace in which hydrogen can come in, carbon capture, whatever the next generation technologies are. You make renewables more competitive; you make nuclear more competitive without having to subsidize them. And it allows us to compete, and when people compete the cream rises to the top.
So, I do think states, you know, they could, they’re certainly allowed to pick the generation mix, that’s, you know, pretty codified. But you have to keep pushing on them to say,” With relaxing the desire to command and control, you’ll get better results if you enforce a more disciplined market structure.”
Todd Snitchler: So, as we bring this to a close, if I asked you, for, you know, what are the three things that you think people ought to know or people need to know about how developers view the world and where you think things are going, how would you encapsulate that? What would you tell people to be mindful of as they look at these decisions that are made?
Tom Rumsey: I think one is that, if you, if you look at the amount of investment that’s going to be needed, just from a pure dollar perspective, you’re not going to get there with just government funding. You need private investment, you need private capital, you need equity investors to get there. You’re not going to get there simply by the taxing or rate based. So that’s step one – understanding how important private capital is going to be to animate the visions we have of a lower carbon future.
And then I think second, I would say you’ve got to understand how difficult it is to build infrastructure. I’m not saying relaxing the reviews, I’m not saying making them any less onerous, but we need to look at how do we, how do we get pipelines built, how do we get transmission built, how do we get Title V, water quality certificates, the whole regulatory review process… If you want this transition this quickly, we’re going to have to find ways to get permitting done more efficiently, more predictive- without relaxing standards at all.
And then third, I would say if there’s something that you want built, put a price on it and let people compete for it. If you want it to be flexible, if you want to be low carbon, if you want it to be in a disadvantaged community, put a price on that and let people compete and you’ll get a better result, faster, cheaper.
Todd Snitchler: And I think that you’ve captured it well and that, you know, we’re all on the same one-way street it’s a question of how fast can we get from here to the end of the road.
Tom Rumsey: That’s right. Without wrecking.
Todd Snitchler: Correct, yeah. That’s that reliability thing all over.
Tom Rumsey: Yeah, because it’s still possible. If we forget that we want to get there so bad that we forget our car can’t do certain things, we’re going to wreck, and we’ve got to be careful of that. It’s very real and we’re starting, we’re actually seeing examples of it. It isn’t theoretical.
Todd Snitchler: Yup. Great point.
[Music transition.]
Todd Snitchler: At EPSA, we know that competition provides more choice and innovation to get us where we need to go. And as you heard from Arne and Tom—there’s a clear path to get there if we put the right fundamentals in place. Allowing all resources to compete to bring the best solutions to market will help build the grid of the future—while keeping the lights on today.
Thanks for listening to Energy Solutions. You can find more information about EPSA, E3’s work and competitive power generators like CPV on our website at www.epsa.org.
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Energy Solutions is brought to you by the Electric Power Supply Association. EPSA represents America’s competitive power suppliers, bringing about 150,000 MW of power generation resources to customers throughout the United States. Discover the power of competition at www.epsa.org.
