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November 8, 2024

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COP28: The World Can’t Afford an ‘Orderly’ Energy Transition

DUBAI — The energy transition will be messy, but mistakes along the way are essential as the world attempts to solve the complex and broken ecosystem that caused climate change, leaders from the industrial and financial sectors said at a McKinsey panel on the net-zero transition.

The panel took place in COP28’s Green Zone, a short walk from the Blue Zone, where governments and NGOs are negotiating commitments and reporting on progress toward the Paris Agreement.

“The idea of orderly transition is a wrongheaded idea,” said Lord John Browne, managing director of climate growth equity fund General Atlantic and co-founder of BeyondNetZero. “It’s testing and trying: no one has the answer.”

This “test and try” approach to solving the energy transition can be seen in everything from incentives to financial structures to supply chains, he said. Governments and industry make mistakes in almost all aspects of the transition, but a poorly designed incentive with unintended consequences is better than no action at all, and those actions help figure out what does work, he added.

Accepting and embracing the three steps forward, one step back nature of the transition is essential, said Tom Linebarger, former CEO and chairman of Cummins, because without it, “it causes people to wait for the perfect solution, for some technologists to deliver something that’s going to be free for everybody and really perfect.”

Lord Browne and Anne Finucane discuss climate financing on McKinsey’s stage in the Knowledge Hub at COP28 | © RTO Insider LLC

“We’re going to be disappointed by the side effects of everything from batteries to hydrogen manufacturing. There are going to be things that we didn’t predict, there are going to be things that don’t work the way we want,” Linebarger said. But “if we don’t get started, we don’t solve those problems.

“The question is, how do you move when you know you’re going to make mistakes? How do you get going to take a step forward? That’s really the challenge in front of corporations, investors, people who are trying to advance the cause.”

Too many corporations wait for the risk to be removed, particularly in industries where commodity prices drive decisions, but Linebarger said companies must act in the short run, with the expectation they’ll learn and win over time.

Investing in the energy transition also means accepting that work will need to be redone over time, Browne said. For example, early wind farms are being redone with more powerful turbines, and solar farms built today will be redone when more powerful panels reach the market.

Even with alignment about the problems and commitments being made by governments at COP28 to solve them, there’s a $2 trillion shortfall of the $4 trillion a year needed to reach climate goals, said Anne Finucane, chair of Rubicon Carbon. “You can figure your way to $2 trillion through the market, just based on 20% equity and 80% financing” that’s typical from banks, private equity firms and asset managers. “The question is what to do about the other $2 trillion.”

Carbon taxes are seen as a necessary tool, but there’s no consensus on whether they should be voluntary or required, and whether voluntary carbon taxes are underpricing carbon.

Panelists said private sector funding alone wouldn’t be sufficient to close the investment gap, and that public and private partnerships are essential. “This is a catalytic moment because it will push governments to do the right thing,” Lord Browne said.

Mapping a Path to Net Zero

The panel coincided with McKinsey’s release of a new report: “An Affordable, Reliable, Competitive Path to Net Zero,” which argues for “not one objective, but four interdependent ones: emissions reduction, affordability, reliability and industrial competitiveness.”

Designing an achievable path is critical, said Daniel Pacthod, senior partner at McKinsey, because the world is far from achieving the Paris Agreement targets. “We’ve seen this in the global stock takes: we’re not going to be remotely close to where we want to be. We are closer to 2.5 degrees in, more than 1.5.”

The report looked at seven principles for decarbonization and said applying two principles — deploying lower-cost solutions and using R&D and other measures to double the expected rate of cost declines — “could substantially improve the current trajectory of emissions and help limit warming to what the Paris Agreement envisions.”

While the potential of a pathway based on those principles is hopeful, the report also warned that “a poorly executed transition could make energy, materials and other products less affordable, compromising economic empowerment. It could also make the supply of energy and materials less secure and resilient, and it could render some countries and companies less competitive. If that happened, progress toward net zero itself could stall.”

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Whitmer Signs Climate Bills, Including 100% ‘Clean Energy’ Goal

Michigan Gov. Gretchen Whitmer (D) signed a sweeping package of climate legislation into law Nov. 28, setting a 100% “clean energy” target for 2040, expanding energy efficiency programs and making it easier to site renewable projects. 

The seven bills Whitmer signed in a ceremony in Detroit codify many of the goals she set two years ago in her Healthy Climate Plan and add the state to the ranks of those pledging to reach net-zero carbon emissions in less than a generation. 

Whitmer said the bills, passed earlier in November by the Democratic-controlled legislature, would reduce utility bills and create thousands of new jobs. (See 100% Clean Energy, Renewable Siting Bills Heading to Mich. Governor.) 

“With today’s bills, we define the future. As Michiganders, we know we have a responsibility to face climate change head-on, not only to make lives better today, but to make sure life goes on centuries from now,” she said. 

The package includes the Clean Energy and Jobs Act, controversial legislation (HB 5120 and HB 5121) that gives the Public Service Commission power to approve sites for new large-scale renewable energy projects if local governments otherwise try to prevent them. Local government organizations have opposed the measures, setting up the possibility of a court challenge. 

Also signed by Whitmer was the Clean Energy Future Package: 

    • SB 271 expands the current 15% renewable energy standard to 50% by 2030 and 60% by 2035. It also requires 80% “clean energy” — including renewables, nuclear and natural gas with 90% carbon capture — by 2035 and 100% by 2040. The law also sets a 2,500-MW storage target for 2030 and increases the cap on distributed generation such as rooftop solar from 1% to 10%. 
    • SB 273 requires utilities to boost their EE savings from 1% to 1.5% and sets the first-ever requirement for EE programs for low-income residents. 
    • SB 502 requires the PSC to consider environmental justice, climate, affordability and reliability in its decisions on utility integrated resource plans. 
    • SB 519 creates a Community and Worker Economic Transition Office in the Department of Labor and Economic Opportunity to help retrain auto, energy and construction workers who lose jobs because of the switch to electric vehicles and efforts to reduce greenhouse gas emissions. 
    • SB 277 codifies an existing state rule allowing farmers to remain enrolled in the state farmland preservation program even if they rent their land for solar farms. 

The state Department of Environment, Great Lakes and Energy cited modeling by clean energy consulting firm 5 Lakes Energy that predicted the new policies would create nearly 160,000 jobs, cut household energy costs by at least $145/year and enable the state to obtain $7.8 billion in federal funding. 

The right-leaning Mackinac Center for Public Policy, in contrast, said the policies would “raise individual electricity rates by potentially thousands of dollars per year.” 

Some environmentalists criticized legislators for changing the 100% deadline from 2035, defining landfill gas and incinerated waste as renewable energy, and allowing natural gas generators to remain in operation if they include carbon capture.  

Juan Jhong Chung, co-executive director of the Michigan Environmental Justice Coalition, said the legislation “completely misses the mark.” 

“In fact, it opens the door for more pollution in overburdened communities,” he tweeted. “This package reflects the priorities of the utilities and lobbying groups. EJ communities expected more of Michigan’s Democratic trifecta.” 

But many raved about the package, saying the new laws make Michigan a national climate leader. 

Alli Gold Roberts, senior director of state policy for Ceres, said her group supported the package “in partnership with many businesses.” 

Michigan is “now leading the U.S. Midwest in clean energy adoption,” Jeff Bishop, CEO of energy storage developer Key Capture Energy, told Energy Storage News. “We’re going to be seeing legislation like this all throughout the Midwest, and Michigan is just going to be the start.” 

Passage of the legislation, which was opposed by Republicans, was made possible when Democrats gained control of both houses and the governor’s office for the first time since the 1980s.  

“Gov. Whitmer is trying to build her national profile with the Democrat Party,” House Minority Leader Matt Hall told Fox News. “I think in order for her to build her brand with the far left and the Democrat Party, she felt she had to try to one-up them here in Michigan.” 

The Legislature ended voting for the year on Nov. 9 after two Democratic representatives won mayoral races, leaving the House temporarily in a 54-54 tie. 

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FERC Approves NERC Standards Process Changes

FERC on Nov. 28 accepted NERC’s proposed changes to its reliability standards development process, but it ordered the ERO to submit a follow-up filing by May 2025 to review the effectiveness of the new provisions (RR23-4).

The changes are intended to streamline the development process and allow a faster response to emerging issues. They will primarily affect section 300 and Appendix 3A of NERC’s Rules of Procedure. NERC’s Board of Trustees approved the revisions at its August meeting in Ottawa and submitted them to FERC for approval the following month. (See “Standards Process Changes Accepted,” NERC Board of Trustees/MRC Meeting Briefs: Aug. 16-17, 2023.)

Section 300 of the ROP provides for “public comment, due process, openness and a balance of interests in developing proposed reliability standards,” FERC’s order noted, while Appendix 3A constitutes the ERO’s Standard Processes Manual (SPM), which sets out how standards are to be developed and revised, along with violation risk factors and severity levels, definitions of terms and reference documents.

Board Authority in ‘Extraordinary Circumstances’

Under a newly added section 322, NERC’s board would have the authority to direct the development of a new or revised standard “in extraordinary circumstances, where the board determines a directive is essential to provide for an adequate level of reliability for the” power grid, an event NERC’s petition called “unlikely and unusual.”

Currently, NERC’s board can make such a directive only when the commission or another governmental body has directed the development of a standard but the ERO’s normal development process has failed to satisfy industry consensus.

If the board does decide to authorize the development of a standard, the new section will require it to provide preliminary written notice, with its reasoning for ordering the standard, and set a public comment period of at least 45 days. Standards the board orders under this new authority will be developed using the SPM and subject to the same requirements for public comment and balloting.

Changes to the SPM include creating a tiered system of comment periods, under which the initial 45-day comment and balloting periods would be followed by shorter comment periods of as little as 30 days, when “appropriate for a smaller number of changes affecting a [smaller] number of standards.” The length of the comment period would be determined by the standards drafting team responsible for the project.

In addition, drafting teams will be allowed to conclude a standards action without a final ballot if the previous ballot received approval from at least 85% of the ballot body; the team has “made a good faith effort at resolving applicable objections” and responded to comments in writing; and no further changes are proposed. If no final ballot is conducted, NERC will provide notice of the outcome as if the ballot had been conducted.

Additional revisions to the ROP include retiring section 316, which “commits the ERO to seeking and maintaining” certification from the American National Standards Institute (ANSI) for its standards development process.

NERC observed in its petition that FERC does not require ANSI accreditation, but that the ERO initially used the process to satisfy the commission’s requirement that its rules provide due process and openness. After “15 years of operating in a unique, multijurisdictional framework,” NERC now believes retiring the ANSI requirement will allow more flexibility in its development approach.

FERC Wants Follow-up in 2025

While the commission agreed with improving the speed and flexibility of the standards development process, it also noted the “need for a timely and responsive … process given the rapid pace of change in the reliability and security of the” grid.

To assess the suitability of the ROP revisions, FERC directed NERC to submit, within 18 months of the commission’s order, an informational report on the effectiveness of the changes and whether any further refinements are needed. FERC said the report should include:

    • data on the ERO’s performance since approval, such as a comparison of development times for standards before and after implementation;
    • discussion of how the revised procedures have helped NERC expedite standards on topics such as resource mix changes, cybersecurity and extreme weather;
    • whether and why any standards have been delayed;
    • recommendations for addressing further concerns with the standard development process; and
    • discussion of how NERC has continued to meet FERC’s requirement of a fair and open process.

Commissioner James Danly did not participate in the decision.

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Big Savings for Tx Competition Claimed as FERC Considers a New ROFR

The Electricity Transmission Competition Coalition released a report Nov. 29 arguing that getting rid of competitive forces in transmission development would cost consumers hundreds of billions of dollars on the grid buildout. 

“Without competition, consumers are going to be faced with decades of high electricity inflation,” ETCC Chair Paul Cicio said in an interview. “We all know that transmission is very capital intensive, and even with competition, consumers’ electricity bills are going to go up. But with competition, we can avoid up to on average 40% of the cost of new transmission.” 

That 40% figure would involve more transmission competition than has happened so far. While FERC ended the federal right of first refusal with Order 1000 more than a decade ago, since then just 3 to 8% of all transmission lines have been subject to competition, ETCC said. 

Getting a third of all transmission development subject to competition would save $277 billion on the $2.1 trillion in transmission expansion that Princeton University forecast in its often cited “Net-Zero America” study. If all new transmission projects were open to competitive bidding at an average cost savings of 40%, it would save $840 billion on that buildout. 

Transmission lines can get returns on equity of 10 to 12% for periods lasting 40 years, but competitive bidding can push that ROE down, ETCC said. 

“Competitors can say, ‘Well, instead of accepting a 12% return on equity, our bid on this project is 10%,’” Cicio said. “That automatically is a lower cost to consumers, so competition drives down costs.” 

In its Notice of Proposed Rulemaking on transmission planning, FERC went the other way, finding that total elimination of a federal ROFR for incumbent utilities on transmission lines running through their territories led to “flawed incentives” that might prevent the most efficient transmission from being developed. The NOPR would allow a ROFR to be reinstated as long as utilities work with another party on any lines (RM21-17). (See Battle Lines Drawn on FERC Tx Planning NOPR.) 

“The real concern here is that competition, when you put it in the context of transmission, is a much more complicated issue than it would be, say, in the generation side,” WIRES Group Executive Director Larry Gasteiger said in an interview. “And what we’re seeing in reality is that things are taking longer, because the processes are much more involved.” 

The two largest RTO markets offer different experiences in building out regional transmission lately, with Gasteiger noting that MISO, with its high share of state ROFR laws, is often touted as successful with its Multi-Value Project portfolio. 

“So, in my mind, that kind of calls into question this argument that you need to have competition in order to get transmission done, and to get it the cheapest possible way,” Gasteiger said. 

PJM has a much different process, leaving policy-based lines up to the states driving those needs. Its utilities’ spending on local transmission has often been criticized, including in a complaint by the Ohio Consumers’ Counsel (EL23-105). The OCC alleged that Ohio utilities had unjustly spent $6 billion on local supplemental projects since 2017, pushing up electricity rates. 

Ohio’s utilities have responded that the OCC failed to show any evidence that they are overspending on such projects, and that it should be left to the state to oversee them. Both sides of the broader transmission-competition debate have weighed in on the complaint as well, with WIRES attaching a Charles River Associates report on the benefits of local transmission planning to its comments. 

“Notwithstanding the challenges that there may be with getting regional, and even more so interregional, transmission [built], that doesn’t mean we don’t need a lot of local transmission developed too,” Gasteiger said. “So, the fact that we’re actually just getting something done at the local level doesn’t necessarily mean that is bad, or that it is wrong. What it means is that it’s needed, and it’s actually getting accomplished.” 

ETCC did not weigh in on the complaint, but many of its members did. Cicio noted that it highlights another part of ensuring costs are low for customers as the grid expands. 

“There’s the oversight to make sure that we need the project,” Cicio said. “The second part, if we need the project, it needs to be competitively bid, so that it reduces costs. It’s a two-step process.” 

ETCC’s report, titled “FERC’s $277 Billion Electricity Price Hike,” focuses on consumer costs, reporting that the price of electricity has outstripped inflation in recent months, despite declines in the cost of other energy commodities including gasoline and fuel oil. One in five U.S. households have struggled to make a utility payment in the past year, and 26% of homes have experienced energy insecurity, it says, citing data on energy affordability from the U.S. Census Bureau. 

“Even the Federal Trade Commission and the Department of Justice of this Biden administration weighed in, in writing, to FERC saying: ‘FERC, do not back away from competition,’” Cicio said. “And, so, we hope that they will do the right thing and strengthen Order 1000 and require all projects that are 100 kV or larger to be competitively bid.” 

Gasteiger did not push back against the census data, but he did question whether transmission competition would really save hundreds of billions of dollars in future investments. 

“Their savings projections are just that: They’re projections,” he said. “They’re hotly contested. And the track record shows that they’re often not reliable.” 

Ultimately, these questions will be answered by FERC whenever it issues its final rule, he said. 

WIRES does not want to see competition for transmission expanded, arguing that would delay transmission that is successfully getting built under the current regulatory model. Competitive transmission might work for the very-hard-to-build lines that stretch across multiple states to ship renewable power long-distance, or in similar transmission projects that help meet public policies, Gasteiger said. 

“See if you can get it to work, and then build on that,” Gasteiger said. “But if not, don’t just automatically start expanding into areas where we’re actually getting transmission built and jeopardize the ability to get that transmission built as well.” 

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FERC Approves Agreement Resolving Versant Audit Issues

FERC approved an agreement among Versant Power, the Maine Public Utilities Commission (PUC) and Maine Office of the Public Advocate (OPA) related to improperly classified expenses that resulted in the overbilling of wholesale transmission customers (ER23-1598).

The issues were first identified in a 2021 audit report issued by the Commission’s Office of Enforcement, which found that Versant improperly capitalized about $18 million in overhead costs, causing the company to overcharge transmission customers.

The company issued refunds in May 2022 and filed in April 2023 to recover some of the overhead costs over an extended period.

The Maine PUC protested this filing, expressing concern about its lack of refunds for retail customers, the potential double-charging of retail customers during the recovery process, and the potential for the proposal to “improperly result in wholesale and retail customers paying Versant a rate-of-return on improperly collected costs.”

In September, Versant submitted an agreement signed by the company, the PUC and OPA to resolve the issues raised by the PUC and establish a process for the company to recover the overhead costs.

The parties agreed to amortize about $15.6 million over eight years, intended to account for the difference between the overhead costs and the refunds owed to retail customers.

On Nov. 28, FERC ruled the agreement “appears to be fair and reasonable and in the public interest and we therefore approve it.”

A spokesperson for Versant told RTO Insider the settlement is fair and “beneficial to both the company and our customers.”

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CARB to Consider Transferable ZEV Truck Credits

The California Air Resources Board is exploring whether zero-emission truck credits that manufacturers earn under the Advanced Clean Trucks regulation should be transferable among states.  

Truck manufacturers say they need the flexibility of credit transfers — also known as credit pooling — to comply with the regulation, particularly in its early years. Advanced Clean Trucks (ACT) requires medium- and heavy-duty truck manufacturers to sell an increasing percentage of zero-emission vehicles each year in states that have adopted the rule.  

In addition to California, eight states have adopted ACT: Massachusetts, New Jersey, New York, Oregon, Washington, Vermont, Colorado and New Mexico.  

But officials in ACT states say that if the required zero-emission trucks go to other states, they’ll lose out on air quality and climate benefits of the vehicles.  

The debate played out during a CARB workshop on Tuesday regarding ACT credit transfers.  

“All pathways to achieving our greenhouse gas reduction targets require switching from fossil fuel vehicles to zero-emission vehicles,” said Rachel Sakata, transportation strategies section manager in the Oregon Department of Environmental Quality. “And given the urgency of the climate crisis, it is crucial that this transformation accelerates to scale as soon as possible.”  

But Tim French of the Truck and Engine Manufacturers Association said that without credit pooling, manufacturers might have to resort to reducing sales of all trucks in a particular state so they can meet the percentage sales requirement.  

“Without credit pooling — and not to be alarmist — there is an increased risk of product shortages in the opt-in states,” French said during the workshop.  

James Clyne with the New York State Department of Environmental Conservation said ACT already gives manufacturers flexibility through measures including credits for early ZEV sales, credit banking and trading, and some credit for near-zero-emission vehicles.  

“The underlying concern in [ACT] states is that pooling could water down ACT sales requirements,” Clyne said. “Flexibility already exists. It is imperative as a first step to determine whether pooling is warranted at all.”  

Clean Truck Partnership

The discussion of pooled credits results from an agreement announced in July between CARB and leading truck manufacturers. (See CARB, Manufacturers Partner to Support Clean Truck Rules.)  

Under the deal, known as the Clean Truck Partnership, truck makers agreed to sell as many zero-emission trucks as reasonably possible in every state that has adopted ACT, even if there are legal challenges to the regulation.  

In exchange, CARB promised to provide more compliance flexibility in ACT. That includes giving manufacturers three years, rather than one year, to make up deficits in meeting ZEV requirements. CARB also committed to holding a workshop this year to discuss ZEV credit pooling.  

CARB released draft text this month for potential ACT amendments, including the increase to three years for making up deficits. CARB staff said their goal is to finalize the rulemaking in 2025.  

Light-Duty Rules

Credit pooling is part of CARB’s zero-emission rules for light-duty vehicles, Advanced Clean Cars II. Manufacturers can use excess ZEV or plug-in hybrid credits to meet a portion of compliance requirements in another state. Credits can be transferred only to fill a deficit.  

In its 2012 version of Advanced Clean Cars, CARB established east and west regions for credit pooling, with California excluded. Manufacturers faced a 30% premium for transfer between the two regions, according to CARB staff.  

But pooling was not included in ACT when CARB adopted it in 2020.  

ACT will take effect in California starting with model year 2024 trucks. The effective date varies in other states but starts as soon as model year 2025 in Massachusetts, New Jersey, New York, Oregon and Washington.  

CARB announced last month that about 8,900 zero-emission trucks from model years 2021 and 2022 have been sold in California or are expected to be sold based on uptake of incentives. That’s about 60% more than the 5,500 ZEVs that CARB estimates will be needed to meet the model year 2024 quota. (See California Far Outpacing Clean Truck Targets.)  

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NYISO Management Committee Briefs: Nov. 29, 2023

Internal Controllable Lines

NYISO’s Management Committee voted Nov. 29 to approve tariff revisions establishing market rules for “internal controllable lines” (ICLs), recommending they be approved by the Board of Directors.

The ISO’s Business Issues Committee previously approved the provisions, which set energy market, capacity market and market mitigation rules for ICLs. Clean Path New York, a 175-mile, 1,300-MW HVDC line selected as a Tier 4 project to deliver renewable power from upstate to New York City, will soon become the state’s first ICL. (See “Internal Controllable Lines,” NYISO Stakeholders Advance Rules on Ambient Ratings, Internal Controllable Lines.)

The changes seek to optimize ICL flows through economic dispatch and prohibit bilateral energy market transactions using ICLs as their source or sink. Additionally, ICLs will have defined operating ranges, bid curves and ramp limits to ensure system stability.

If approved by the board, the rules are expected to be filed with FERC in the first quarter of 2024.

Ambient-adjusted Ratings

The MC also moved to approve and recommend the board approve tariff revisions aligning day-ahead market (DAM) congestion settlement procedures with ambient-adjusted ratings (AARs).

FERC Order 881 requires transmission providers to evaluate transmission capacity based on real-time environmental conditions and mandates the use of AARs for short-term transmission requests, and seasonal ratings for long-term requests (RM20-16).

The ISO’s proposed revisions address discrepancies between AAR rating limits in the DAMs and those used in transmission congestion contract (TCC) auctions. The changes revise calculations for the congestion rent impacts of uprates and derates and create a new category of qualifying events, which emerge from differences between the DAM ratings required by Order 881 and those assumed in TCC auctions.

The BIC also previously approved these revisions. (See NYISO Stakeholders Advance Rules on Ambient Ratings, Internal Controllable Lines.)

If approved by the board, the ISO plans to implement these revisions alongside compliance proposals already accepted by FERC.

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NJ Launches 2nd Solicitation Under Solar Incentive Program

New Jersey’s Board of Public Utilities (BPU) on Nov. 27 launched its second attempt to solicit solar projects at a price the agency considers acceptable to ratepayers, driven by the hope that the high costs that derailed a similar solicitation earlier this year have subsided.

The three-month-long solicitation, which will close on Feb. 29, seeks bids under the Competitive Solar Incentive (CSI) program for “grid supply” solar installations and nonresidential net-metered solar installations with a capacity greater than 5 MW. Also eligible under the program are grid-supply solar projects combined with energy storage.

The solicitation, which could award projects totaling up to 300 MW of capacity, follows a similar process to the last one, for which bidding closed March 31; the BPU terminated it in July by rejecting all the bids because they were too high. The BPU did not say at the time how many bids were submitted but said they were all above confidential price caps it had developed. (See NJ Rejects Solar Bids as Too Expensive.)

In response, the board made changes to the solicitation rules and evaluated the process by which the price caps were determined.

The order launching the new solicitation, approved Nov. 17, said the board anticipates that “competition amongst solar development projects will arise organically.” It expressed the belief that the prices of the solar renewable energy credits submitted by bidders would “provide the amount needed to enable development, without over-incentivization.”

“The board anticipates that certain factors that may have pushed bid prices to a high level, including expectations around component costs and inflation, as well as regulatory uncertainty at the federal level, have abated, creating a more favorable competitive environment,” the order said.

The solicitation presents a test for the board’s CSI program, in part to see whether bidders will come forward after the board rejected all the last bids and whether there is sufficient interest in the program as a whole to help the state achieve its ambitious solar goals. BPU officials have cited the program as a key element in the state’s effort to install 12.2 GW of solar by 2030 and 17.2 GW by 2035. The latest BPU figures, as of Oct. 31, show the state has a total installed capacity of 4.655 GW, about 40% of the 2030 target and slightly more than one-quarter of the 2035 goal.

Setting Correct Price Caps

The CSI is part of a two-pronged effort to stimulate solar development with incentives under the Successor Solar Incentive (SuSI) program, which was enacted in July 2021 to replace predecessor programs that critics said were too generous.

The BPU sets the incentive levels in the first part of the program, known as the Administratively Determined Incentive (ADI) program, which caters to net-metered residential projects, net-metered nonresidential solar projects of 5 MW or less, and community solar programs. Incentive levels in the CSI, which covers projects of 5 MW or more, are set through a competitive solicitation.

The CSI program awards incentives in four market tranches: basic grid-supply projects; grid-supply projects sited on the built environment; grid-supply projects sited on contaminated sites and landfills; and net-metered nonresidential projects greater than 5 MW. Project developers submit bids on the level of incentive they would need to complete their projects. In a separate part of the CSI program, projects that incorporate a storage element first submit a bid solely for the solar project and then submit a price for the storage.

The BPU order said that after the first solicitation produced excessively high bids, staff and consultant Daymark Energy Advisors analyzed the outcome and concluded that a “spike in energy prices in the fall of 2022 resulted in an estimate of energy revenues for solar projects used for modeling that was likely higher than the estimates used by developers in the spring of 2023.”

In addition, the analysis showed that there were “uncertainties in the energy and capacity markets” and that “interest rate spikes beginning in 2022 and carrying on into 2023 likely drove developer cost projections higher than those reflected in the initial solar price cap analysis.”

“In a competitive solicitation, incentive values should reflect current market conditions and provide a long-term, guaranteed incentive structure for developer investment,” the order said. “Price caps serve as a protective mechanism against noncompetitive bids and would generally be set at a level that exceeds expected competitive bids.”

In response, BPU staff recommended that the board again use confidential price caps in the second solicitation. However, the order also said the caps should vary for different types of projects. Thus, the caps on grid-supply projects on a built environment and those on contaminated sites and landfills in the solicitation are 15% and 32%, respectively, higher than the cap on basic grid supply submissions. The cap on net metered nonresidential projects above 5 MW is $20 higher than the cap on basic projects.

The board also agreed to award bids that are up to 10% higher than the price cap if the project warrants it.

To encourage repeat bids, the board this time has waived the fee for developers who submit a project that is largely similar to one for which they put in a bid in the first solicitation.

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As COP28 Begins, Experts Say Paris Agreement Targets Are Out of Reach

DUBAI — Hydrocarbons are not going away anytime soon despite growing climate financing and escalating renewables deployment, leaving little chance of reaching the Paris Agreement target of limiting global warming to 1.5 C, said industry analysts at an S&P Global Commodity Insights event held the day before COP28 officially opens in Dubai. 

This year’s Conference of Parties (COP) climate negotiations will illuminate the gap between ambition and action as countries report on how they’re progressing against stated targets in emissions reductions.  

“There will be a stock take around where we said the world would be and where the world actually is,” said Saugata Saha, president of S&P Global Commodity Insights. “Our sense is that the stock take is going to show that emissions currently are roughly two times what it needs to be or what it should be to get us to a 1.5-degree scenario by 2100.” 

While S&P Global’s analysts were able to force two scenarios that would limit climate change to a 1.5 C rise, no one saw those scenarios as likely to unfold given the massive scope of the change needed and the pace of change to date.  

“Fossil fuels have never represented less than 80% of global total primary energy demand since the 1990s, and probably going back many years before that,” said Paul McConnell, executive director of climate and sustainability at S&P Global Commodity Insights.  

The event coincided with the release of a discussion document, “Energy Transition: Strategic Choices Demonstrating Progress.” S&P Global’s analysis included several scenarios, and its “Base Case” scenario reflects a faster-than-expected decline in demand for fossil fuels as well as an acceleration of renewables deployment. But even with that better-than-expected transition, that scenario still results in 60% of the global primary energy mix coming from fossil fuels by 2050 and a 2.4 C temperature rise by 2100.  

“Energy is not the enemy. Emissions are the enemy, and that’s what we need to be thinking about,” Saha said.  

S&P Global’s base case view expects faster declines in demand for fossil fuels and emissions of GHGs, and accelerated growth for renewables | S&P Global

Saha suggested paying close attention to how the future of fossil fuels is discussed at COP28. “We anticipate there will be a lot of conversation around ‘phase out’ versus ‘phase down’ and abated versus unabated use of fossil fuels,” he said. “Those will have a meaningful impact on what the next few years look like.” 

The phaseout — or lack thereof — of fossil fuels has gained additional attention after the Centre for Climate Reporting and BBC revealed that the president of COP28, Sultan Al Jaber, an oil industry executive, planned to use the climate talks to do oil deals, confirming the fears of climate activists who questioned both the location of COP28 and the industry ties of the talks’ president. 

When looking at energy from hydrocarbons, it’s important to distinguish those energy sources based on carbon intensity, he said, citing the sixth edition of Platt’s “Periodic Table of Oil” which maps carbon intensity of the many distillates derived from various grades of crude oil.

Saha noted the wide variances in the carbon intensity of various grades of crude oil, and that “even within a particular grade of crude oil, there can be further significant variances of carbon intensity based on the field of production, the producer, the assets, etc. This is one example where we made a start to assess carbon intensity, provide transparency to the markets and make sure that we are creating the framework for people to make good decisions.” 

Beyond the Energy Transition: The Trilemma

Saha said the conversation has changed over the past few years from being focused on the energy transition to looking at solving what he calls the energy trilemma: sustainability, security and affordability.  “Balancing these three is no mean feat.” 

While energy sustainability is self-explanatory, security — making sure there’s access to energy as and when needed — has taken on new importance. 

“Some of the recent geopolitical events over the last three years or so, and some of the supply chain shocks which continue to do this day, amplify the need for energy security as a part of the equation that needs to be solved,” Saha said. 

“Energy affordability is equally important. We shouldn’t lose sight of the fact that there are a few billion people who are counting on affordable sources of energy as a means [of] alleviating poverty or getting a few hundred million people onto a path to prosperity,” he said. 

Financing the Energy Transition: Some, But Not Enough, Good News

An uptick in energy-transition-related financing indicates the business case is getting more attractive, Saha said.  

“Financing is important because A, it makes things happen, and B, it is a very good leading indicator which shows how capital is being deployed to solve problems of tomorrow,” he said. “We know that energy transition-related financing is approaching a $2-trillion-a-year number globally with about half a trillion of that coming from the U.S., and that’s the good news. Part of the bad news is this is a fraction of what is required.” 

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Ameren Files to Recoup Rush Island Closure Costs from Customers

Ameren Missouri appears to be making good on a two-year-old announcement to close its Rush Island coal plant, which has racked up multiple Clean Air Act violations over the years.

Last week, Ameren Missouri filed for permission with the Missouri Public Service Commission to use securitization to finance the closure of the plant through ratepayers (EF-2024-0021). The utility said it wants to wind down operations by mid-October next year to avoid installing sulfur dioxide scrubbers per a court order.

The financing option Ameren seeks is possible through a two-year-old Missouri law that allows utilities to securitize outstanding debt on their facilities to further the energy transition. If approved, Ameren would be free of Rush Island debt and free to invest in other generation, while investors paying the bonds would be guaranteed a return of 2% to 4%. The securitization would result in a new line item on monthly bills of $1.71 for the average residential customer for the next 15 years.

Ameren estimates it has more than $475 million of undepreciated investment in Rush Island today.

Despite the request for ratepayer-backed bonds to recoup plant investment, Ameren pledged customer bills would decrease with the earlier-than-anticipated retirement. It estimated customers would save $120 million over 15 years.

In its filing, Ameren said “costs of securitization are lower than traditional ratemaking” and concluded that “retirement of Rush Island instead of retrofitting the plant with expensive pollution control equipment is clearly in customers’ best interest.”

In testimony to the Missouri PSC, Ameren Missouri President Mark Birk said by the time the order from the U.S. District Court for the Eastern District of Missouri to scrub Rush Island became final, “circumstances had made the continued operation of coal-fired plants extremely challenging.”

He said EPA’s proposal to limit carbon emissions from existing coal plants poses “serious risks to the continued viability of these assets,” so installing hundreds of millions of dollars’ worth of scrubber equipment is unwise.

“Faced with these realities, the only prudent option was to shut down Rush Island instead of adding scrubbers,” Birk said.

For resource planning purposes, Ameren long assumed the 1.2-GW plant would retire sometime in 2039.

The embattled coal plant has been at the center of a yearslong legal battle over its emissions. In 2007 and again in 2010, Ameren replaced boiler components at Rush Island that upped output without completing a new source review as required under the Clean Air Act, triggering a lawsuit from the Sierra Club and an eventual court order to install pollution controls or shut down.

Birk said the securitization of the cost of retirement for Rush Island is appropriate because Ameren made “prudent decisions” when making investments in the plant. He argued that at the time, the boiler upgrades were viewed as routine and completed by other utilities without a new source review.

The District Court in late September approved Ameren’s decision to retire the plant in October 2024. It previously said the plant should cease operations in March.

Whether Rush Island can retire by October is unclear. Ameren itself cautioned in its filing the new retirement date could change.

The plant has been operating for more than a year under a MISO-designated system support resource (SSR) agreement, used to keep generation operating past planned retirement dates for the sake of system reliability.

MISO last year deferred Ameren Missouri’s planned retirement of Rush Island to keep the grid reliable. The utility pulls in a FERC-approved $8.3 million monthly payment to keep the two-unit Rush Island Energy Center operating (ER22-2721). (See FERC Approves Lower MISO Reliability Payments to Ameren Coal Plant.)

In early summer, MISO said it likely will require the assistance of Rush Island for nearly two more years to avert voltage violations until members complete transmission upgrades and bring wind, solar and battery storage projects proposed in Illinois and Missouri online. The RTO previously said it plans to renew the SSR once more in 2024. (See MISO Poised to Extend Missouri Coal Plant’s Life.)

However, MISO spokesperson Brandon Morris said MISO’s tariff cannot override a federal court order; “therefore, Rush Island must cease operation on this date.”

“MISO will follow its tariff in determining if the existing SSR contract can be extended or if a new SSR contract can be issued for the period between Sept. 1, 2024, when the existing SSR contract expires, and this Oct. 15, 2024, date,” Morris said.

MISO declined to comment on whether it sees a need to request an extension of the SSR and didn’t elaborate on whether it expects enough new generation and system upgrades in place by the third quarter of 2024 to take the two coal units’ place.

The Missouri Public Service Commission has set a Dec. 15 deadline for those wishing to intervene in the case.