Published in Energy

Utilities chart renewable energy future as state mandates level off

BY Sunday, March 28, 2021 06:00pm

Michigan’s mandates for renewable power and energy efficiency programs — first set in 2008 and slightly increased in 2016 — are scheduled to level off this year, although it may make little difference as the clean energy transition rolls on under market forces.

The state’s two largest utilities have announced clean energy targets over the next few decades to virtually eliminate carbon emissions from their power generation. Meanwhile, industry experts  expect early and anticipated climate action from the Biden administration to further drive the clean energy sector through policy levers including incentives and placing a high price on carbon emissions. 

Add in the ongoing decline in wind and solar prices and customer demand for renewables, and consensus is growing among experts that Michigan’s clean energy standards worked as intended to jumpstart the industry, but that they’re likely no longer necessary.

“Utilities are building more and more renewables just to keep up with the demand they’re getting,” including from voluntary renewable energy purchasing programs, said Tim Lundgren, a partner at Varnum LLP specializing in energy. “That is pushing them way beyond the renewable portfolio standard, which in a sense has outlived its usefulness. It was great to kickstart things, but at this point the demand side is pushing renewable energy development and utilities are responding to that.”

Democratic lawmakers proposed legislation last year to expand the 15 percent renewable energy standard, but it failed to gain traction in the Republican-controlled state Legislature. The 2016 energy law rewrites that increased the renewable target from 10 percent to 15 percent by 2021 also created a new long-term utility planning process known as Integrated Resource Planning (IRP). Under state law, regulated utilities are required to model various scenarios for renewable penetration that factors in costs and emissions.

“The RPS has been very beneficial for a lot of our members. It has enabled the market to get going in Michigan,” said Laura Sherman, president of the Michigan Energy Innovation Business Council. “At this point, given the utility IRPs, cost declines and the shift to renewables, we’re at the point where this is market-driven change and doesn’t necessarily need to be driven by mandates.”

Brandon Hofmeister, senior vice president of governmental, regulatory and public affairs at Jackson-based Consumers Energy, agreed that market forces and long-term planning are playing a much larger role in the utility’s renewable energy build out. In its first long-term plan filed with state regulators, Consumers plans to build or contract for 6,000 megawatts of new solar power by 2040.

“Our IRP obviously blows past a 15 percent renewable portfolio standard pretty aggressively,” said Hofmeister, adding that the utility “wouldn’t be opposed” to expanding the RPS, unlikely as it is in the state Legislature.

Among more immediate concerns for MEIBC and other clean energy advocates is the sunsetting of energy efficiency programs for municipal utilities and electric cooperatives under the 2016 law. Absent any change to state law, those utilities will no longer be required to offer efficiency programs beyond 2021.

“Energy waste reduction is critical for meeting our carbon reduction goals,” Michigan Department of Environment, Great Lakes and Energy Director Liesl Eichler Clark told MiBiz. “We will see that look different at the end of the year because municipal utilities and co-ops will switch over to voluntary. We’re going to be watching that very carefully.”

Federal policy outlook

Although more targeted bills are expected or are moving through the state Legislature involving taxation on solar projects and lifting caps on utility rooftop solar programs, some of the major energy policy shifts ahead may be coming from the federal level. 

Shortly after taking office, the Biden administration announced goals for a carbon-free power sector by 2035 and overall net-zero carbon emissions economy-wide by 2050. Democrats controlling the U.S. House and Senate may also pursue 100 percent clean energy targets, with House Democrats introducing a bill in early March largely mirroring Biden’s goal.

“It’s conceivable you could get a (federal) clean energy standard set up in a bipartisan way,” Hofmeister said, referring to other potential clean energy policies through budget reconciliation or expanding renewable energy tax incentives.

Another climate change directive Biden laid out at the start of the administration that could have sweeping effects across the energy sector is revisiting the social cost of carbon, which places a per-ton price on carbon emissions. The Obama administration first used a social cost of carbon of around $50 per ton for climate regulations. It was scaled back to around $5 per ton under former President Trump.

The Biden administration is reportedly considering expanding the calculation to include environmental justice and long-term effects on disadvantaged communities, and reports have suggested it could fall in the $100-per-ton range.

“It makes the benefit side of reducing carbon much more valuable,” Hofmeister said. “As we’re reducing carbon emissions across our business, things that are less than the social cost of carbon might be cost-justified versus (technologies) that are five- to 10-times higher.”

Varnum’s Lundgren expects to see a new social cost of carbon calculation particularly affecting oil and gas pipeline projects.

Meanwhile, clean energy advocates and state officials also are tracking closely what the Biden administration’s infrastructure spending package will look like, which has reportedly been pegged at around $3 trillion.

“There’s so much we could do with more federal money on the climate side around infrastructure, whether it’s building out electric vehicle charging, weatherizing houses in Michigan or electrifying heating and buildings,” said Charlotte Jameson, program director for legislative affairs, drinking water and energy with the Michigan Environmental Council. “To my mind, a lot of that work needs to happen particularly in low-income and communities of color.”

Eichler Clark said the Whitmer administration will be closely following federal infrastructure plans with an eye toward water quality and climate change.

“Obviously, we’re interested in what actions the Biden administration might take around climate and mobility and how that overlays with what we’re doing in the state,” she said. “We’ll be paying a lot of attention to that.”

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