Late last month, as global leaders headed to Davos, Switzerland to discuss the ramifications of climate change (and a host of other “Globalization 4.0” topics) at the annual World Economic Forum, I too was mountain-bound for multiple days of intensive discussion.
My destination? Steamboat Springs, Colorado. There I joined a group of 150 business leaders, government officials, and academic experts exploring the challenges and opportunities facing energy and water management in western North America.
While the Western Energy & Water Forum took place at a higher altitude than the World Economic Forum, it was decidedly a lower-profile event. We had a former governor, former Congressman, diplomats from Canada and Mexico, and several state legislators, but not a single prime minister was in the room and no journalists were to be found. The issues of concern were more regional in nature, but the discussions illuminated some important realities energy decisionmakers face in a globally significant region:
- Today’s West Possesses An Extraordinary Range Of Energy Options.
“The West” – roughly defined here as Texas, Oklahoma, the 13 states and 2 Canadian provinces west of the continental divide – is flush with energy options.
Abundant fossil resources have fueled the region’s economy for more than a century. The Western states comprise just one-third of the U.S. population—yet account for two-thirds of the nation’s oil production, just over half of its natural gas production and 57 percent of its coal production. Similarly, the Western provinces of Canada (Alberta and British Columbia) account for less than one-quarter of the nation’s population but over 80 percent of the country’s oil production, 97 percent of its natural gas and 85 percent of its coal.
The region is also home to plentiful solar, wind and hydro resources. The Western states currently account for sixty percent of all renewable generation in the U.S. and possess prime solar and wind resources for further expansion.
- A Dynamic Policy Environment Is Shifting The Region’s Energy Landscape.
In recent years, several Western states and provinces have instituted or announced policies aimed at reducing greenhouse gas (principally carbon dioxide) emissions from energy production. These efforts have established targets for power generation that must come from renewable or carbon-free sources and some have set emissions caps or prices.
Twelve Western U.S. states have Renewable Portfolio Standards (RPS) or goals which mandate or encourage a certain percentage of electricity coming from renewable resources.
The most populous state, California, also has a cap and a price on carbon dioxide emissions, further favoring wind, solar and hydropower over coal and natural gas. California has established a goal of 100 percent zero-carbon electricity by 2045, which includes renewable, nuclear power and carbon capture technologies.
Some newly elected governors in the region are wading into the fray as well. New Mexico’s Governor Michelle Lujan Grisham introduced a bill that would mandate 50 percent renewable power by 2030 and 80 percent by 2040, and Colorado Governor Jared Polis campaigned on a policy of 100 percent clean energy for the state by 2040.
As of 2017, Canada’s national policy now requires that all provinces price carbon emission in pursuit of national emission reduction goals under the Paris Climate Accord. This is nothing new for British Columbia—which in 2008 became the first jurisdiction in North America to institute a carbon tax.
- Coal And Nuclear Power Confront Headwinds.
Sure, policies aimed at reducing carbon emissions certainly dim the prospects for coal power generation. But the coal industry has already taken a painful walloping from other market forces.
With the advent of hydraulic fracturing, a surge in shale gas production caused natural gas prices to plummet. In 2005, coal accounted for 51 percent of all power generation in the U.S. and natural gas for 18 percent. Each source now accounts for 31 percent.
Of course, low-cost wind generation has piled on to coal’s problems in the West.
Thanks to these factors, 2018 saw a near-record number of coal plant closures in the U.S. More are on the way, including in the Western region. The nation’s largest coal plant, the Navajo Generating Station in Arizona, is slated to close at the end of 2019, after efforts to sell the unit and extend its life fell short. Despite some recent upticks in export-driven coal production, the Trump Administration’s attempts to revive the industry seem unlikely to reverse coal’s downward trend.
Nuclear power faces similar pressures from natural gas and renewables. And it’s not consistently considered a legitimate “clean” energy option for policy purposes.
See Arizona, where last fall’s Proposition 127 ballot initiative omitted nuclear energy from its proposed renewable energy target. Some feared the initiative would force the closure of Arizona’s Palo Verde nuclear plant, the nation’s largest power plant. That possibility—paired with the imminent closure of the Navajo coal plant—prompted concerns about the adequacy of baseload power supply to meet summertime peak load demands. Proposition 127 was soundly defeated at the ballot box, but parties are now discussing the possibility of a nuclear-inclusive clean energy standard taking its place. Even with such a standard, the future of nuclear power in the West is by no means certain due to market pressure on existing units and cost-prohibitive new construction.
- Greater Integration of Western Power Markets Seems Inevitable.
Right now, the West is distinct within the U.S. in terms of its more decentralized approach to power markets. In the Eastern U.S., most power producers and consumers are linked together via multi-state regional transmission organizations/independent system operators (RTO/ISOs), which enable wholesale markets across state lines. In contrast, Western states operate more independently, without an RTO/ISO directly linking sellers and buyers across state lines. Instead, nearly 40 balancing authorities ensure that supply and demand are kept in balance to meet local needs.
The West’s more decentralized system has served regional needs fairly well to date. But there is a sense that its days are numbered. Higher penetration of variable renewable energy and potential loss of large baseload stations will inevitably require greater coordination across the region to ensure cost-effective balancing of supply and demand. To that end, various stakeholder have been exploring the creation of a Western regional RTO/ISO either independently, linked with the California ISO (CAISO), or linked with the Southwest Power Pool (SPP) ISO to the east.
These efforts have sputtered recently, but Western utilities are getting more involved with the Western Energy Imbalance Market (EIM). The EIM is a bulk-power energy market run by CAISO: non-California utilities buy and sell electricity in a real-time market to ensure that the California system is in balance. Participation is voluntary (rather than forced by a formal RTO/ISO structure) and is estimated to have generated more than $400 million in benefits to participants since its inception in 2014.
Some Western Energy and Water Forum participants referred to the EIM as a “Goldilocks solution” – not too much integration, not too little, but just right. Yet it remains to be seen whether the region’s “big bear” balancing problems will be satisfied by this approach.
- NIMBY Challenges Can Strike All Forms of Energy Production.
Events that convene energy and water interests from across the spectrum are sure to reveal points of disagreement—but they can also highlight common concerns. In the West, facility and infrastructure siting is becoming a major concern for all forms of energy production.
While renewable energy often invokes images of “small is beautiful,” the reality is that being cost-competitive often requires large-scale operations (hundreds of acres or more). Scale means disruption and disruption can bring resistance.
Conventional and renewable energy interests at the Forum seemed eager to learn from one another and from stakeholders about how to address these siting challenges. This much seems clear:
- “Trust me” appeals will generally not work, regardless of an operator’s track record.
- People tend to trust sources that reinforce their existing beliefs, which presents problems for coming to consensus.
- Stakeholder engagement and transparency in the siting process is essential.
While siting resistance generally seems to be on the rise, Forum participants noted the recent failure of Colorado’s Proposition 112, which would have substantially expanded the minimum distance requirement for new oil and gas drilling operations within the state. Some saw this as an omen for how voters balance perceived costs and benefits of new siting restrictions.
- Westerners Are Staring Down Resiliency and Stability Challenges.
As the Forum was taking place, Pacific Gas and Electric (PG&E) was preparing to file for bankruptcy protection against liabilities incurred by wildfires linked to its operations in California’s desiccated landscape. With most Forum participants operating in the arid West, these developments sparked a number of conversations about resiliency in the face of environmental and cybersecurity risks.
The prospect of large integrated systems covering the West’s wide geography promises many cost and load-balancing benefits. After all, a mighty grid can outperform small, isolated ones on cost-effectiveness and reliability most of the time.
The picture gets more complicated during large-scale shocks such as wildfire, tropical storms, ice storms, cyberattacks, or unexpected systemwide failures (e.g., the 2003 Northeast blackout that left 55 million people without power). While a larger grid can provide backup when local failures occur, it can also expose a wider population to perturbations in supply when the transmission and distribution network is disrupted.
These issues are top of mind right now for utilities, government officials, and others in the West as they seek the holy grail: power systems that integrate microgrid features into a larger grid infrastructure to provide self-reinforcing macro- and micro-scale resilience.
Looking Ahead – Global Challenges, Local Engagement
I won’t try to predict what will emerge from the crucible of environmental conditions, economic realities, and political will in the West. But this much is clear: By virtue of its resources, the region will continue to drive the trajectory of energy in North America—and will have a significant impact on the global energy picture. Though energy and water challenges are global, the action to address them is often local in nature. A Forbes contributor recently asked whether the Davos dialogue, which takes a decidedly global view of issues, needs to go local, where the rubber meets the road. The Western Energy and Water Forum was scheduled well before that question was posed, but the Forum’s purpose resonates with the suggestion of more localized form of engagement to explore globally relevant challenges, share information about relevant advances, and create room for consensus solutions to energy and water problems in the West and beyond.
[Will Niver and Braden Welborn of the Duke University Energy Initiative provided research and editorial support for this post]