To Find Progress in Clean Energy Development, Look to Utility Regulators

Almost half of the states in the United States now have 100 percent clean energy goals targeted for 2050, and others for 2040. Washington D.C. has the ambitious goal of 2032. Despite increased commitments, the U.S. still only relies on renewables for 12 percent of its energy needs.

One universal challenge to achieving these clean energy targets is transforming grids. “If you look at all utilities, and what's the dominant behavior, it is that they're not doing much in fossil fuels and renewables," Galina Alova, from the Smith School of Enterprise and the Environment at the University of Oxford, told the BBC in 2020. "So they might be doing something with other fuels like hydro power or nuclear, but they're not transitioning to renewables nor growing the fossil fuel capacity,” she added. A study from the end of 2020 found that, globally, a mere one-tenth of energy suppliers were prioritizing sources of clean energy over fossil fuels.

The Hawaii model

Back in 2014, Hawaii was the first state to create its 100 percent clean energy goal. Today, it is setting an example for the nation as it pursues this goal — not in technological innovation, but in utility regulation. Last month, Hawaii’s utility commission approved performance-based regulations and transitioned away from the standard cost of service regulation model, which incentivizes selling more electricity and building more assets.

The new model incentivizes cost cuts, improving performance and service and building renewable infrastructure. Rewards and penalties are built into the system.

Even though Hawaii is the first state to implement the model, Jim Kelly, Hawaiian Electric’s vice president, recently told National Public Radio (NPR) that performance-based regulations will become the new norm. And, he said, there are business benefits to doing well under that model: “If we can continue to make that [solar] interconnection experience a positive thing, then it's potentially up to three million dollars upside for us.” Not reaching the annual solar interconnection minimum could mean nearly a million dollars in fines but getting enough sources of clean energy online by 2023 could mean a bonus as big as $15 million. He told NPR that since the new regulations have been in place, they have been getting customer solar systems online in half the normal time.

Utilities find a business case in pursuing clean energy

Finding leadership in the remote archipelago makes sense when considering its dependence on fossil fuels. According to the U.S. Energy Information Administration, Hawaii is the most petroleum-dependent state, and all that fuel (supplying almost two-thirds of electricity generation) is shipped across a couple thousand miles of ocean to get to the islands.

Shipping costs also hike up retail prices. Hawaii has the highest average in the nation. But even when considering clean energy on its own, the state benefits economically from prioritizing these alternatives. Sources like solar and wind have become less expensive to produce in the majority of the U.S. a 2019 study found.

Utility investors are clear on these bottom-line benefits of renewability. Low-carbon energy development is proving to be an opportunity for profit-growth and resilience. In response, investor pressure surrounding climate action is ratcheting up. In October, a group of investors representing more than $60 trillion in assets put the fire under utilities to decarbonize by 2035. Given this context, it’s no surprise Hawaiian Electric saw its credit rating improve on Moody’s, S&P and Fitch as the new regulations came into effect.

Is a revolution in utility regulation on its way?

While Kelly predicts that performance-based regulations will be spreading to the far reaches of the U.S., reforms may not come so simply. The harsh reality is that not every public utility commission is independent from the industry it is designed to regulate. Some utilities have resorted to what can be best described as bribes to keep clean energy development at bay. In 2014, Arizona’s largest utility sent millions in dark money to candidates running for the state’s Corporation Commission in an effort to shrink homeowner incentives to install rooftop solar panels. Clearly, in some cases, utility customers will have to raise their voices to influence change. But as utilities struggle to remain profitable under current circumstances, it’s clear the tide of regulatory reforms can’t be held back forever.

Image credit: Mike Baker via Unsplash