With a new $3 billion dollar loan guarantee to Sunnova Energy Corp. for a nationwide virtual power plant, the Department of Energy’s Loan Programs Office (LPO) is working to accelerate deployment of clean energy resources across the country. From the Accelerating Clean Energy Infrastructure Summit, VX News excerpts LPO Director, Jigar Shah, and Southern California Edison’s Director of Resource and Environmental Planning and Strategy, Erica Bowman, moderated by LPO's Arnab Pal, on what's needed to speed up the energy transformation and the incredible federal resources included in the Infrastructure Investment & Jobs Act and Inflation Reduction Act and more to finance game-changing clean energy projects to meet ambitious decarbonization goals across the country.
Arnab Pal: Erica, we'll start with you. Back in 2019, Edison published their Pathways Report, which was one of, if not the first of, its kind. It was an outline of what California would need to get to net zero by 2045. There's a series of goals in there, 70 percent transportation electrification, 100 percent of retail sales decarbonized in order to get to that 2045 goal. We're four years in, and the question I have is, what kind of progress are we making? What is the sort of problems we have as we move toward 2045?
Erica Bowman: Thanks so much for having me. That's a great question because not only did we put out that paper back in 2019, the CEC also had put out a decarbonization paper in terms of how to get to 80 percent by 2050. So there has been a lot of work done there.
In 2018, that was when Governor Brown signed the executive order for net zero and that was a real impetus for why we wanted to look at the problem, in addition to SB100 being signed into law, which required 100 percent of retail sales of electricity being decarbonized.
The goalposts have moved in the past four years. With the passage of AB1279, not only did it codify the net zero goal, but it added one additional goal that we reduce our GHG emissions by 85 percent from 1990 levels by 2045.
In our original paper back in 2019, we kind of had a box of 108 million metric tons that was on a trajectory to meet the 2050 80 percent reduction requirement. We knew we needed to offset this or sequester those emissions. Today, we realize that that goal is very different, that 108 million metric tons needs to be at 64 million metric tons. It makes it more stringent. It makes what we do along that pathway a little bit more intense.
With that, I think we have even more electrification that we need to get done on the vehicle space or hydrogen. Maybe hydrogen is some of the solution there as well. We have more building decarbonization that we need to hit sooner.
I think some of the questions and the challenges that we're seeing today is how do we get the grid capacity established so that we're able to meet all this new demand that will come online? In our 2019 paper, we said demand is going to increase about 60 percent from 2019 levels. Now it might be more. We don't know, depending on how fast the economy grows, what that looks like. It may be depending on how fast electrification happens.
There's a real issue today of how we get the grid capacity increased and build that so that we're able to connect, not only the renewable generation of storage, but also all of our customers who have the need to have carbon free. They need to have decarbonized fleets, whether that's on the hydrogen side. If we're using hydrogen produced from electrolysis, maybe you still want to be connected to the grid, maybe not. If we're not using hydrogen from electrolysis and we're just using electricity to power these vehicles, there's a lot of work to be done. I think when we look at that, that's one of the biggest challenges.
I will say, big kudos to the CEC. One of the biggest kinds of planning processes that we have to go through is our Integrated Resource Plan. We go through different distribution planning processes, transmission planning processes, and we have to use what's called the IEPR. It shows the demand, the expected demand through 2035. In the most recent release of the IEPR, there are policy cases that say, “this is what needs to happen on the demand side, or what will happen, if we're going to meet our 2030 goals and our 2035 goals.” That really enables us to do a lot better planning on meeting some of these great issues. So, thank you very much for that because we are required to use that demand forecast in our planning processes by the Public Utility Commission.
Arnab Pal: Great, I think you've outlined some of the potential challenges that are going to be faced. Jigar, we have the IRA, we have Build Back Better, we have the CHIPS act. We have both a structure to be able to subsidize clean energy and, I'd say, an incentive mandate to rebuild as much as that back here in the United States. How can the federal government, both the loan program and in general, really help Edison and the State meet some of these challenges?
Jigar Shah: It’s a great question. I think we're in a really interesting period of time, where the planning work is going very well, whether it's the CEC or Southern California Edison or others.
The part that continues to be problematic is that the State of California, far longer than most, there's been no loan growth or very little loan growth for decades, on purpose because we did a lot of energy efficiency. We banned incandescent light bulbs, and we did all the things that we wanted to do to figure out a way to get electricity bills down. California does have high electricity rates, but has fairly modest electricity bills. We now recognize that that model no longer works. We have to sell more electricity to decarbonize the grid and the economy by 2050.
That mindset shift alone is hard. I can tell you on a piece of paper and in a business plan exactly how I'm going to do this, but actually going to line workers, going to all the people who run the grid or the day-to-day basis and saying to them, “sorry, guys we have a new plan here. The things you've been doing for last 30 years--now we're figuring out how to put twice as many electrons through that pipe than we did before.” That's, that's a huge cultural shift. I think we just have to recognize that this is a different instruction set that we're giving people.
The second piece is that what happened in the 1970s was that everyone found air conditioning. You had this entire movement in the electric utility world where the upgraded transmission distribution, built 500,000 megawatts of natural gas capacity across the country that was used for four hours or five hours a day or whatever it was, seasonally. That led to the asset utilization of our current grid going from around 70 percent asset utilization down to about 40 percent. We are at the lowest asset utilization point of our grid in history.
As a result, the Energy Information Administration has said that the cost of the grid has gone from roughly two cents a kilowatt hour in 2010 to four cents 2020. That's a much higher increase in California.
So, we’re in a situation where we have this trillion-dollar asset that we've invested in, and we do not try to get the most out of it. We basically use the T&D thing and we let load do whatever it wants to do. Then, we have to modulate supply to help meet whatever load wants to do.
As we move to this new paradigm a lot of folks are recognizing a few things. One is that building brand new transmission lines is hard. I think SCE has done this extraordinary job of finding existing rights-of-way and figuring out how to build a lot more capacity into existing rights of way. The other thing you can do is reconduct old lines, many of which are 30 plus years old and use better wire that allows you to carry a lot more capacity under that existing right of way. That's one piece.
The second big piece is that we are starting to realize is that people are adding battery storage to their garages with their solar systems, and you've got batteries in people's cars. To put this in perspective, the total amount of batteries that we expect to have on the entire US grid in 2030 is roughly 100 gigawatt hours. If you look at the cars that are going to be shipped in 2030, the US government is expecting 800 gigawatt hours to ship in that year alone in those cars.
We talk about utility-scale battery storage, as if it were the panacea for all things, but in general, the bigger source of batteries is in people's cars. Then the question is, how do those batteries get to be used as a grid resource? Some people may not want them to be used as a grid resource, that's their choice. Other people may want to do that, but they want to get compensated for that, of course. How would one compensate for that?
There are two big things that we're grappling with right now. One is, how do you deal with transmission when people don't really want to provide Greenfield corridors for transmission? The second thing is how do we change the way we operate the grid, given all the technology that we've invested in and commercialized over the last 15 years?
The way we help at the Loan Programs Office is always money. We have over $300 billion in capacity. One of the things that we have is the Energy Infrastructure Reinvestment Fund, which is $250 billion. We have about $35 billion in loan applications being actively prepared by utility companies. We're talking to about 260 utility companies across the country. Largely, we do not tell them what to do, but just say, “you’ve already created this awesome plan that goes out to everybody. There are pieces of that plan that we can accelerate with these funds, which have a much lower cost than your own bonds and would not affect your bond rating, etc.”
So, a lot of utilities are saying, “Oh, yeah, I didn't think about that. Maybe there are projects that we were going to do in ten years that we can do in three years because it would make it easier on the grid. With these dollars available, we could do that.”
But the other piece of it is that we, at the IIJA as well as the IRA level, are providing a lot of funding for people to electrify everything. There are a lot of people who are buying electric cars and who are moving to a place where they're reducing their natural gas consumption but increasing their electricity consumption. Part of the way that you pay for this transition is by increasing the amount of kilowatt hours sold. If you're spending the same amount of money, or more money, but not increasing the kilowatt hours sold, it results in much higher electricity rates.
We're helping a lot on the electricity demand side by helping people make the transition and finding much lower-cost capital for people to make these transitions so they can accelerate the things that they already had planned to do.
Erica Bowman: I agree with all of that, and some of the issues that we're seeing now in real time is the deployment of some big items such as fleet vehicles, so medium duty, heavy duty vehicles. On a light duty side, we do have a lot of capacity that we can use and serve that exists already. We're not seeing those same issues. But from an electric transportation transformation at the fleet level, that's an area where you might have 5 megawatts or 10 megawatts coming on because a fleet needs to charge their vehicles in a certain way. So, you might need to build new substations to support the distribution line. There's a lot of downstream impact that occurs that we’re seeing today. Those are things we need to work through now, let alone 20 years from now.
One of the things that we're focused on is how can we get the information early from our customers. If anyone out there is in charge of fleets and you're thinking of electrifying, please talk to us, if you’re in our service area, because we want to know early. It doesn't matter if your plans aren't perfect, we want to know estimates so that we can start planning for that appropriately. Then, we can get through a lot of the siting and a lot of the licensing processes so that we have the infrastructure in place to support that decarbonization that needs to happen in the long term.
In addition, on the demand side there is a lot of opportunity, especially as new appliances are rolled out that are smart. The question is, how can we use these smart appliances, whether it’s a dishwasher, dryer, heat pump, in a way that can help the grid? We can to help manage the distribution side. We can help manage loads by not putting so much pressure. We used to let load do what it does and then we tried to match it with supply. We will not have the same dispatchable resources. In 2045, we will have a very different looking fleet even relative to today in California. We're going to have a lot more solar; we're going to have a lot more wind; we're going to have a lot more batteries.
Questions still arise, especially in California, because we have a lot of solar. That is one of our cheapest resources to build and use. Look at what happened this winter. We had a very cloudy winter and we continue to have it, today. What are we going to do when we have 80 percent of our buildings electrified that are using heat pumps, and you have ten days with no sun.
These are real questions that we need to start grappling with, as we transition. It does lead us to some real conversations about there being a bigger role for hydrogen or natural gas that has CCS attached to it. We need to start thinking about these pieces. Small advanced nuclear, maybe that's something that we need to figure out how to implement. There will be reliability challenges if we don't start exploring those today and having them available in 2045.
Jigar Shah: Nuclear is one of the things that we are right in the center of. The Loan Programs Office is in charge of the commercialization of technology. DOE has been extraordinary in innovation for 45-plus years. Whether it's enhanced geothermal and figuring out how to get the cost of that from $110 a megawatt hour down to probably something closer to like $70 a megawatt hour or whether it’s natural gas plus CCS or whether it's solar plus storage, long-duration energy storage, so that they can actually operate at 70-80 percent capacity utilization.
One of the things that we are doing a lot of at LPO, but also DOE broadly, is a lot of the econometric studies to really help people understand where these things are trending from a learning curve perspective. There's a lot of false information out there, where people are saying this stuff's going to be free in 20 years. All these costs are coming out at around $70 per megawatt hour. That's useful information.
I talked to 70 utility CEOs last week at the Accenture Conference in Beverly Hills. They were like, “this is the first time the government has said what that number is.” Now we're doing long term planning models. We can actually say, in the new clean power generation, whether it's solar plus wind plus long-duration energy storage or you choose natural gas plus CCS or you do geothermal low impact hydro or small advanced nuclear reactors, all of it is roughly coming in at $70 a megawatt hour to provide a level of dispatchability and services as Erica mentioned. If you have 10 days of clouds or some of these other things, what resources would you use? Are you diversified? It matters, because if everyone's saying it's $19 a megawatt hour, it's politically impossible to sign the contract at $70 an hour.
Erica Bowman: On that point, one of the other pieces that we don't really talk about a lot when we're talking about mitigation is that we also have the climate changing as time goes. The climate change that we're experiencing today is expected to be more severe in 2045 and 2050, and that does add additional cost pressures on the grid and other areas. It's not just a grid issue, obviously, it's all infrastructure, real challenges, as a society that we need to address.
So that other piece of how do we diversify is really to address not just the climate mitigation side or reduce emissions, but how do we make certain that we're adapting appropriately to the climate change?
Jigar Shah: One of the things I’d like to add emphasis on is equity. How do we use the funds allocated out of the Inflation Reduction Act, but also Loan Programs Office, to help ease this energy transition?
It's obvious that no matter how much money comes from the federal government, it's never enough. The list of people who've signed up for low-income housing energy assistance payments or weatherization programs or Hope for Homes or any of these other programs, is a much longer list than the number of grants available through these programs.
At the same time, you have this 17-year or so, roughly, replacement cycle where people are buying new air conditioners or new refrigerators or new water heaters or whatever it is, as their appliances wear out. You want to make sure that they get slotted into part of the solution during that next purchase cycle. Figuring out how we make these interventions because low-moderate income consumers don't get free appliances, they pay for these appliances.
For many of these folks, if you don't have $2,000 lying around, which most people don't, then they're putting it on credit cards or they're finding some other way to finance them. They can often pay upwards of 30 percent interest. The question really becomes: how do we make sure that when we're investing these precious dollars that we're also making big gains on the equity side of things?
Pull Quotes:
“We talk about utility scale battery storage, as if it were the panacea for all things, but in general, the bigger source of batteries is in people's cars. Then the question is, how do those batteries get to be used as a grid resource?” -Jigar Shah
“The way we help at the Loan Programs Office is always money. We have over $300 billion in capacity. One of the things that we have is the Energy Infrastructure Reinvestment Fund, which is $250 billion. We have about $35 billion in loan applications being actively prepared by utility companies.” -Jigar Shah
“We're helping a lot on the electricity demand side by helping people make the transition and finding much lower cost capital for people to make these transitions so they can accelerate the things that they already had planned to do.” -Jigar Shah
“We can actually say, in the new clean power generation, whether it's solar plus wind plus long-duration energy storage or you choose natural gas plus CCS or you do geothermal low impact hydro or small advanced nuclear reactors, all of it is roughly coming in at $70 a megawatt hour to provide a level of dispatchability and services…” -Jigar Shah