Figure 2.1: Guess What: Falling Solar Costs, Rising Retail Rates

Figure 2.1: Guess What: Falling Solar Costs, Rising Retail Rates

Source: Commercial Rooftop Revolution, Institute for Local Self-Reliance (ILSR), Dec. 2012

As this future unfolds, it becomes possible to manage the tough issues of the early years because of a return to solid economic growth and the emergence of national political leadership to address the threat of climate change. Innovative new technologies are decreasing costs and providing new features and options for consumers and businesses. This does not come easy because new policies take time to implement and industry players experience an adjustment period. Between 2013 and 2018, key policies and decisions take shape in an atmosphere of positive, yet nervous feelings for all participants in the industry, especially investors.

During these early years, the U.S. and global economies confront several fearsome challenges, including: (1) The environmental damage associated with a warming climate and economic dislocations associated with extreme weather-related events; (2) The European debt, banking, and currency crises; (3) Turmoil in the Middle East shaking oil markets and increasing prices (even though there is no shortage of oil in the world); (4) An ongoing concern about potential sovereign debt defaults by the U.S and certain European nations; and (5) Persistent unemployment challenges, coupled with a slow recovery in the housing and real estate markets that stifles consumer spending, which is still the major driver of U.S. economic growth. Fortunately, regulatory adjustments within the banking sector ensure that lending and banking activity is now better aligned with public policy and long-term stable growth.

These myriad problems would normally push other legitimate concerns like climate change, looming water scarcities and utility infrastructure to the bottom of a legislative list. However, after Hurricane Sandy’s devastation of the U.S. Eastern Seaboard in 2012 as well as the drought conditions in the Western U.S., citizens voice concern about the safety of cities, valued natural resources, agriculture and the quality and stability of essential public infrastructure. There’s now a willingness to pay more to ensure greater security and reliability in these vital systems. Political leaders feel emboldened to communicate to voters the tough choices required to rebalance incentives in order to grow the economy in a more sustainable direction. This includes addressing greenhouse gas emissions like carbon and expressing a willingness to invest in technologies, which mitigate the cost of climate change. Regulators recognize these concerns and focus on sending accurate price signals to the market in order to spur the necessary investments.

In the WECC region, states, provinces, and local governments develop the fundamental groundwork that will eventually pay big dividends for long-term growth and environmental protection; the region bursts with economic activity, especially in the energy sphere. Examples include:

1. 
   Maintaining renewable portfolio standards in order to provide a positive climate for investment in innovative clean-energy technologies;
   
2. 
   Taking the lead on policies required to cap carbon emissions (thereby monetizing those emissions);
   
3. 
   With some federal support, providing tax credits and other benefits to spur electric vehicle adoption;
   
4. 
   Creating and enforcing new rules on water use and safety;
   
5. 
   Monitoring and regulating the safe use of new natural gas drilling techniques, reducing fugitive emissions of carbon in drilling and transportation, and enabling that fuel’s accessibility;
   
6. 
   Regulators working with local utility companies to bring increased efficiency and high technology into the management of their power systems and lower energy costs for consumers and businesses; and
   
7. 
   Working with businesses in the manufacturing sector to develop jobs as U.S. competitiveness increases due to lower costs of energy and high levels of innovation.
   

During these years, the basic components of the emerging electric energy business are in place. These components include:

1. 
   Expanding implementation of smart grid and metering technologies;
   
2. 
   Building of renewable energy generation—both wind and solar power systems as well as advanced geothermal systems—supported by sustained R&D;
   
3. 
   Continued evolution of battery technology to serve both the automotive and distributed generation industries;
   
4. 
   Investment in new information, communications, sensor and control technologies that will bring more efficient management into the power system;
   
5. 
   The expansion of pay-for- performance cost recovery regulation in the power sector that allow for more win-win business models for consumers and investors; and
   
6. 
   Continued investment in energy efficiency and opportunities for distributed generation.
   

The electricity sector struggles with what to do about existing coal and natural gas generation. Some business and political constituencies support extraction of fossil fuels. Supporters in both the Eastern U.S. coal states (West Virginia, Ohio, and Pennsylvania) and coal-producing states in the WECC region develop a national alliance meant to save the domestic coal industry. This coalition is able to delay the impact of EPA rules on the coal industry and advertise the ability of new technologies—including the development of carbon capture and sequestration—to keep one of North America’s most abundant fossil energy resources online. Policy proposals for the long-term survival of the fossil industry lead to the U.S. government approving the development of export facilities on the West Coast for coal and LNG exports to China and other Asian nations. Climate advocates see this policy as a zigzag and one that is inconsistent with the spirit of the policy changes enacted to address climate change. There is frustration among activists and some investors with policy makers not seeming to understand the growing benefits of cleaner fuels, market innovations and investments that are supporting optimization of the power grid.

Natural gas supporters contend that it is much cleaner than coal, has a smaller carbon footprint, and that it is much easier to build gas-fired power plants in a wide range of sizes to support the base-load, peaking, and fast-ramping needs of power companies. Domestic gas supplies are just as abundant, if not more so, than coal. There’s an expectation that increasing supplies will restrain increases in natural gas prices even while sustaining some level of exports.

The retirement of old, dirty coal plants makes perfect sense to environmental activists and natural gas enthusiasts (see Figure 2.1 below for one forecast of possible coal retirements). Advocates for the renewable energy business also view the retirement of coal plants as essential to the replacement of dirty capacity with clean capacity. Growth, technological advances and economies of scale will continue to lower the cost of renewable generation and increase its competitiveness across the board. Taken together, the battle for market share among coal, gas, and renewables suggests lower overall energy costs as they each provide checks and balances on one other. Wind and solar generators find themselves continually on alert to find ways to lower their costs.