Power Policy to Modernize the Grid (Part 3 of 3)
Not all problems can be solved by simply investing in new infrastructure. To be successful and fully meet the challenges and opportunities posed by our energy network, policy needs to support projects and the marketplace.
The list below compiles an inventory of policy that can be enacted at federal, state and/or municipal levels to modernize our energy infrastructure, and our economy. The commentary below is not intended as dictum; rather, it is intended to foster discussion.
Pollution Tax (aka Carbon Tax)
Nothing would be more meaningful to the deployment and acceleration of clean and distributed energy than implementation of a Pollution Tax, commonly referred to as a Carbon Tax. Why? Because it allows the market to do its work by creating a truly transparent marketplace, where costs are fully borne and recognized.
Fossil fuels are currently subsidized by a “free” right to pollute, which is a significantly bigger subsidy than the ones often cited around renewables. Frankly, it’s socialized cost masquerading as capitalism. With a Pollution Tax in place, we’d be well served to remove renewable incentives and let the market act as the balancing agent.
Politically, a revenue neutral tax is most palatable, and it is the recommended strategy to secure political support from both sides of the aisle. Recently, a set of prominent Republican leaders published an article in the New York Times outlining support for exactly that, a revenue-neutral carbon tax of $40.
Economists commonly recommend against international tariffs collected at the border because it creates global viscosity in the flows of capital and generally diminishes outcomes. Recognizing that, the recommendation here is not that tariffs are advisable. Rather, if international tariffs are a foregone conclusion, implementing them as an extension of a Pollution Tax collected at the border may be the cleanest approach to doing that.
Why? Because it may buy better air cover internationally and support a more positive position for the US around the COP. In execution, a Pollution Tax collected at the border might more diplomatically target countries with the highest contribution to climate issues and motivate them to address their impact more aggressively using US $$ as the incentive. A Pollution Tax applied universally might also create incentives to avoid international shipping in the supply chain and thus drive local manufacturing domestically.
On political calculus, it’s worth observing that “Pollution Tax” is likely a better brand than “Carbon Tax” for building support. (It’s tough to defend pollution as meriting a free ride.) Plus, “Pollution Tax” provides an allowance and theoretical flexibility to address other pollutants beyond carbon, like methane.
Tax credits and Incentives
The ITC (Incentive Tax Credit) and the PTC (Production Tax Credit) have played a significant role in the advancement and acceleration of solar and wind in the marketplace. They have driven economies of scale behind these strategic technologies.
An energy storage ITC would be an incredible boon to drive velocity of outcomes around clean technology, distributed energy, national security, emergency resilience and smart cities generally. The easiest way to implement a storage ITC would be to allow energy storage deployments to participate in the solar ITC. Nonetheless, a separate and longer-range model might lead to even greater commercial commitments and market acceleration. Interestingly, Maryland just passed a 30% energy storage tax credit, which I suspect will be a driver of storage deployments, a balanced grid, jobs and the economy in the state.
Tax credits to deploy microgrids and virtual power plants (VPPs) might also provide a major deployment driver of distributed, modern energy infrastructure. As such, an independent microgrid ITC may be worth examining, though the desired outcome might best be achieved through as an extension of an energy storage ITC.
As with energy storage, microgrids and VPPs make the grid more granular and atomize vulnerability points. Thus, such incentives offer insurance policies for national security and emergency resilience. Further, done right, microgrid and VPP deployment incentives can be structured to tie directly to new, smart city infrastructure deployments. Not enough can be said about the value of driving smart city development generally. In fact, a recent TechCrunch article makes that precise point.
While proponents might argue that such incentives are less subsidies than they are acceleration mechanisms for strategic technologies, opposition will nonetheless characterize them as subsidies.
For that reason, a market-wide “Pollution Tax” may be the cleanest, fairest and most efficient path forward to drive all desired outcomes.
The political philosophy of the hour has been around deregulating the limitations placed on fossil fuel energy. What’s good for the goose is good for the gander.
It’s surprising that political opportunists around distributed energy haven’t aggressively seized the moment to push deregulation of rules holding back the advancement of clean technology and distributed energy. Limitations on market participation. Arcane marketplace rules. Artificial rate structures. Siting restrictions. Interconnect and permitting bureaucracy and impediments.
Done right, major energy deregulation could prove invaluable to free the market for broader participation of advanced energy, expose new rate structures and drive deployment of distributed energy resources.
There is also significant opportunity for deregulation of transportation, with specific focus on autonomous and drones. As Secretary of Transportation, Elaine Chao holds one of the most important and potentially impactful positions around modernization of our grid and our economy. Focus by Secretary Chao on strategic deregulation could serve as a critical accelerant of the electrification of transportation.
For the past 100 years, we’ve lived with a grid in which our utility relationships are defined by meters tied to specific properties. With advancements like community solar, EVs (and remote charging thereof), and soon community storage, grid footprints will span multiple meters across a shared delivery network. We will seek greater flexibility in defining economics and impact than a simple sum of individual meter relationships.
Remote net metering allowances are currently few, far between and highly constrained. Virtual net demand allowances don’t exist (yet). To enable a truly dynamic and balanced grid, we need to tackle that.
Because it’s a complex subject that bears more detail, I’ll save the deep dive for another post. Needless to say, enabling broad flexibility for virtual metering will be key to advancement of our grid and attainment of its full potential.
It’s difficult to determine the extent to which government research has driven development and cost declines. Nevertheless, initiatives like the Department of Energy’s SunShot initiative to get solar under $1/watt have, at a minimum, been positive forces in driving market realities. Along these lines, research to bring the cost of safe, compact and reliable energy storage under $50/kilowatt hour would be incredibly valuable. Research focusing on wireless EV charging might also create significant value. So would research around embedding solar into building, construction and industrial materials, and around advanced and dynamic energy networking technologies.
All the above are solutions to deliver a more dynamic, diverse and distributed grid. We need that not only to mitigate against economic losses from outages, but more importantly, to drive job creation and the economy of tomorrow, to mitigate against the potential macroeconomic opportunity cost (of not doing so) and to prevent the loss of our worldwide leadership position.
Energy focus is also about resilience and support for our communities and citizens in times of trauma. We need to do much better and recover more quickly when natural disasters like Hurricane Sandy, Hurricane Katrina, and earthquakes strike our communities.
Investing in energy is a matter of national security. Period. The centralization of our current grid architecture and exposure of its delivery infrastructure exposes us unnaturally and makes us exceedingly susceptible to malicious agents. We can and must do better.
Let’s get to it.
- New York Times: ‘A Conservative Climate Solution’: Republican Group Calls for Carbon Tax
- Greentech Media: A Step-by-Step Plan for Grid Modernization in a Distributed Energy World
- Greentech Media: Maryland Passes First-of-a-Kind Tax Credit for Residential and Commercial Storage
- Energy Collective: Is Over-Regulation Holding Back Energy Storage?